The cycle of bloodletting escalated Wednesday as a Palestinian blew himself up on a Jerusalem bus and killed 16 other people, and Israel retaliated with rocket attacks that left nine dead in Gaza, including two Hamas militants. President Bush called on all nations to cut off funds to terrorists like Hamas.

Smoke rises after an Israeli helicopter fired missiles at a car carrying two Hamas militants in Gaza city, Wednesday June 11 2003. [Reuters]

A U.S.-backed peace plan was in tatters only a week after Bush launched it, putting his prestige on the line at a dramatic Mideast summit with Israeli Prime Minister Ariel Sharon and Palestinian Prime Minister Mahmoud Abbas. Since then, 24 Palestinians and 21 Israelis have been killed.

The sudden surge of violence continued just after midnight, when Israeli helicopters fired missiles at a car in the Zeitoun neighborhood of Gaza City, witnesses said. Two people were killed, doctors said. They were identified as low-level Hamas members, ages 22 and 24, from a unit that guards city streets.

The Israeli military said the target was a cell of militants who were about to launch a mortar shell at the nearby Jewish settlement of Netzarim. Seven other Palestinians were killed in helicopter attacks Wednesday.

The suicide bombing in one of Jerusalem's most policed areas underscored the vulnerability of Israel and the ineffectiveness of Abbas' efforts to persuade militants to end terror attacks.

Even as U.S. officials called on all sides to stick to the "road map" peace plan, Sharon insisted he would not let up in his assault on militants. Israel will "continue to pursue until the end the terrorists and those that send them," he said.

The bus bombing was carried out by a man dressed as a religious Jew. Hamas claimed responsibility and rejected a call by Palestinian leader Yasser Arafat for a halt to the violence. Palestinians identified the bomber as Abdel Madi Shabneh, an 18-year-old high school student from the West Bank town of Hebron. Israeli soldiers began searching his house after sundown.

Arafat - putting himself in the limelight despite American and Israel attempts to squeeze him out - went on Palestinian television to condemn Wednesday's attacks and implore both sides "to stop this deterioration and return to the negotiating table for the sake of the two peoples."

A visibly angry President Bush condemned the Jerusalem bombing and called for all nations "to fight off terror, to cut off money to organizations such as Hamas, to isolate those who hate so much that they're willing to kill to stop peace from going forward."

One of the wounded in the bus bombing was the daughter of New Jersey State Senator Robert Singer, Israel Radio reported. Her condition was not known.

The violence fulfilled worst fears after Hamas and two other militant groups killed four Israeli soldiers in Gaza on Sunday and Israel responded by trying to assassinate a Hamas political leader in a rocket attack Tuesday.

The bombing of Jerusalem bus No. 14 took place during the early evening rush hour on Jaffa Street, a bustling thoroughfare repeatedly targeted by Palestinian militants.

The blast blew out windows and hurled passengers from the red-and-white bus. It tore a large hole in the left side, peeled back the roof and set off a fire that blackened the inside.

Hagid Stein said she had just gotten off the bus. "I didn't know where to go, where to run," she said, crying. "I don't believe I'm so lucky."

Natan Sharansky, Israel's minister for Jerusalem affairs, stood next to the wreckage of the bus shaking his head. "My daughter rides that bus, so immediately you start checking where your family is and getting irritated because one doesn't know where the other is and none of the phones work," he said.

Police said that in addition to the bomber, 16 people were killed and 70 wounded, eight critically.

A Hamas-linked Web site claimed responsibility for the attack on behalf of the Islamic group's military wing.

Abdel Aziz Rantisi, a Hamas co-founder and target of Israel's botched attack on Tuesday, rejected Arafat's call for a cease-fire. "We will continue the resistance until we liberate this land, until Sharon realizes that this land is for Palestinians, for Muslims," he said.

Less than an hour after the Jerusalem bombing, Israeli helicopter gunships fired two missiles at a small Fiat stuck in a traffic jam in a crowded Gaza City neighborhood, turning the vehicle into a burning ball of wreckage. The helicopters then fired again after a group of people gathered around the vehicle, witnesses said.

Pulled from the car were the bodies of two members of Hamas' military wing - Tito Massoud, 35, and Soffil Abu Nahez, 29. One of the bodies was decapitated. Five other people also were killed, and 30 people were wounded, doctors said.

Jamil Hamdia cried as he carried his 11-year-old wounded cousin through Shifa Hospital and denounced Abbas, also known as Abu Mazen, who has come under Palestinian criticism for making too many concessions to Israel.

"Where is Abu Mazen to come and see?" wailed Hamdia. "Are we cheap, to be killed like this? If that makes him a good leader I think his place is not among us."

An Israeli official, speaking on condition of anonymity, said the Gaza attack was not in retaliation for the bus bombing, but was a planned effort to take out Hamas militants.

The Israeli official said Massoud was in charge of producing and firing homemade rockets into Israel. Palestinian security sources said Massoud commanded Hamas' military wing in northern Gaza, masterminding attacks on Israeli targets, and served as personal assistant to Hamas military leader Salah Shehadeh - who was killed by Israel in July.

The bombings and missile attacks badly undermined the fragile position of Abbas, who has little political base of his own and took office April 30 as part of a plan to restart peace efforts.

While declaring an end to the armed uprising against Israel, he has resisted Israeli pressure to dismantle Hamas and other militias, fearing civil war. Instead, he is trying to persuade the militants to halt attacks on Israelis. An Egyptian mediator met Wednesday with Abbas and Arafat in Ramallah before the day's attacks to deliver an offer by his country to host truce negotiations.

Hamas walked out of cease-fire talks with Abbas last week.

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