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The two Palestinian gunmen were also killed in the assault at the Merkaz Harav seminary, the Israeli emergency service Zaka said. Israeli television said there may have been a third attacker, who escaped.

Fifty ambulances raced to the area and police held back worried parents searching for children who had been attending a study session marking the start of Adar, the most festive month of the Jewish calendar.

Witnesses said the two gunmen entered the crowded compound of the seminary and fired automatic weapons at students.

"There was a lot of gunfire and hysteria," one witness said.

Another said they saw police and armed civilians trading gunfire with the gunmen.

"The gunbattle went on for about 10 minutes," the witness said.

Outside the five-storey building, a crowd shouted "death to the Arabs".

Noone has yet claimed responsibility for the attack.

In the Gaza Strip, gunmen fired in the air to celebrate the attack, three days after Israel ended a military offensive in the Hamas-run territory that killed more than 120 Palestinians, about half of them civilians.

Sami Abu Zuhri, a Hamas official, said the group "blesses the heroic operation in Jerusalem, which was a natural reaction to the Zionist massacre".

A loudspeaker in Gaza City blared the message: "This is God`s vengeance."