Israel's leaders held the Hamas-led Palestinian Authority responsible for the deadliest homicide bombing in 20 months but stopped short Tuesday of branding it an "enemy entity" or ordering a large-scale military operation.
Interim Israeli Prime Minister Ehud Olmert and key Cabinet ministers instead revoked the Israeli residency rights of three Hamas lawmakers living in Jerusalem, meeting participants said.
Monday's blast, which killed nine other people and wounded dozens outside a packed Tel Aviv fast-food restaurant, was carried out by a bomber from the Islamic Jihad militant group. However, Hamas leaders defended the attack as a justified response to Israeli "aggression" against the Palestinians.
Olmert and senior advisers and security chiefs met for two hours Tuesday to weigh a response. The group decided to hold Hamas responsible because it did not denounce the bombing — a sharp departure from the previous Palestinian leadership's immediate condemnations of such attacks.
"Israel sees the Palestinian Authority as responsible for what happened yesterday," senior Israeli Foreign Ministry official Gideon Meir said.
Participants said Olmert decided against launching a large-scale military operation and blocked a proposal to declare the Palestinian Authority an "enemy entity." Such a declaration would have paved the way for direct strikes against the Palestinian Authority.
Until now, economic and political boycotts have been Israel's main tools against the Hamas government.
At the White House, President Bush was asked by a reporter whether he had encouraged Israel to show restraint in its response.
"I have consistently reminded all parties that they must be mindful of whatever actions they take and mindful of the consequences," Bush said. "I strongly deplore the loss of innocent life and the attack on the folks in Israel yesterday. It is unjustified and it is unnecessary.
"And for those who love peace in the Palestinian territories, they must stand up and reject this kind of violence."
Earlier, Israel's U.N. ambassador, Dan Gillerman, told the U.N. Security Council that the Hamas government's verbal support for the bombing, as well as recent statements by Iran and Syria, "are clear declarations of war, and I urge each and every one of you to listen carefully and take them at face value."
Gillerman said a new "axis of terror" — Iran, Syria and the Hamas government — was sowing the seeds of the first world war of the 21st century.
Israeli security chiefs also have proposed tightening travel restrictions, including making it harder for Palestinians to move between different parts of the West Bank and extending a blanket closure of the West Bank and Gaza.
The bomber came from the northern West Bank, and the military planned to step up raids in that area. The army also proposed intensifying targeted killings of Islamic Jihad activists.
In an initial response, Israeli aircraft attacked an empty metal workshop in Gaza City early Tuesday, causing no injuries. The army said the workshop was used by the Popular Resistance Committees militant group to manufacture homemade rockets launched at Israel.
Monday's bombing was the first inside Israel since Hamas came to power at the end of March. Islamic Jihad threatened more attacks, saying it had trained 70 more potential bombers — both men and women.
Hamas officials defended the blast as a justified response to Israeli military strikes against the Palestinians. Hamas, which has carried out scores of homicide bombings since the early 1990s, has largely observed a truce since last year but refuses to renounce violence and recognize Israel's right to exist.
Islamic Jihad, which is believed to be funded in part by Iran, refuses to observe a cease-fire. Hamas officials have said they would not try to stop or arrest members of other militant groups trying to carry out attacks.
Atef Adwan, a Hamas Cabinet minister, on Tuesday dismissed Israel's claim that the Palestinian Authority is ultimately responsible for the attack.
"Israel is trying to find a pretext to act against the Palestinian institutions and act against the Palestinian people," he said.
A confrontation between Israel and Hamas could endanger Hamas' efforts to secure desperately needed international aid and acceptance. The government is broke and has been unable to cover the large public payroll, despite recent aid pledges of $50 million each by Iran and Qatar.
The United States and the European Union have cut off hundreds of millions of dollars in aid to the Palestinian Authority following Hamas' victory in legislative elections in January, demanding the group renounce violence and recognize Israel.
The United States and EU consider Hamas a terrorist organization.
"Defense or sponsorship of terrorist acts by officials of the Palestinian Cabinet will have the gravest effects on relations between the Palestinian Authority and all states seeking peace in the Middle East," White House press secretary Scott McClellan said.
Moderate Palestinian President Mahmoud Abbas condemned the bombing and said it harmed the Palestinians' national interest. However, the Palestinian U.N. observer, Riyad Mansour, who is close to Abbas, noted that Israeli military strikes in Gaza earlier this month also killed 19 Palestinians, including two children.
The bomber struck during Monday's lunch hour at "The Mayor's Falafel" in a busy neighborhood near Tel Aviv's central bus station. The restaurant, which had been the target of a January bombing, was packed with Israelis on vacation during the Passover holiday.
A guard outside was checking the bomber's bag when the 10 pounds of explosives inside went off, police and witnesses said.
"Suddenly there was a boom. The whole restaurant flew in the air," said Azi Otmazgo, 35, who was wounded on his hands, foot and head.
The bomb, laced with nails and other projectiles, shattered car windshields, smashed windows of nearby buildings and blew away the restaurant's sign. Glass shards and blood splattered the ground. Police said the guard was torn in half by the blast.
Six Israelis, two Romanian workers and a French tourist were killed. One of the Israelis also had French citizenship. One woman was killed while standing near her husband and children, who were slightly wounded, witnesses said.
In Gaza, Islamic Jihad militants handed out pastries on the streets in celebration.
The attack was the deadliest since an Aug. 31, 2004, double homicide bombing on two buses in the southern city of Beersheba killed 16 people.
It was the second major Passover bombing in four years. A 2002 attack at a hotel in coastal Netanya killed 29 people and triggered a major Israeli military offensive.
Islamic Jihad identified Monday's bomber as Samer Hammad from a village outside the northern West Bank town of Jenin. In a video released by the group, Hammad said the bombing was dedicated to the thousands of Palestinian prisoners in Israeli jails.