The blast came two days after the U.N. world court ruled that Israel's West Bank separation barrier — which Israel says is meant to keep out Palestinian attackers — is illegal.
In his first comment, Prime Minister Ariel Sharon said Friday's ruling by the International Court of Justice in The Hague, Netherlands, was one-sided and had encouraged the Tel Aviv bombing.
Sharon ordered construction of the barrier to continue, and vowed "to fight using all diplomatic and legal means" against the world court's decision.
The explosives went off early Sunday, as a bus pulled up at a stop near Tel Aviv's central bus station.
"I heard the explosion and I saw the hysteria," Shlomi Ben-Abu, a witness, told Israel Army Radio. "A woman soldier flew across my view." The explosion blew out the windows of the bus.
A 19-year-old female soldier was killed, the army said. Police said 32 people were wounded. Hospital officials said five people suffered serious injuries, with the remainder treated for shock or light wounds.
The Al Aqsa Martyrs' Brigades, a violent Palestinian group linked to Yasser Arafat's Fatah faction, claimed responsibility, saying it was avenging the deaths of members killed by Israel. "This says that we can reach every place, even when there is a fence," said an Al Aqsa spokesman in the West Bank city of Nablus.
Palestinian officials condemned the attack. "We are against all bombings like this," said Palestinian leader Yasser Arafat.
Sharon linked the bombing to the world court's ruling on the barrier.
"The murderous act this morning is the first that occurred with the endorsement of the decision of the world court at the Hague," Sharon said.
"The decision sends a destructive message to encourage the terror and denounces countries that are defending themselves against it," he added.
The court ruled that the barrier violates international law. The judges said construction should halt, the barrier should come down, and Israel should compensate Palestinians for their losses.
Israel has completed about one-fourth of the planned 425-mile (685-kilometer) structure. Israeli officials have cited construction of the barrier as a key reason for a relative lull in attacks by Palestinian militants. Sunday's blast was the first deadly one in Israel since a March 14 suicide bombing in port city of Ashdod.
Some Israeli commentators said the court ruling was a sign of long-standing hostility toward Israel at the United Nations.
Others said the country's image had suffered a serious blow. "Israel has become a leper country in the eyes of a substantial part of the world," wrote Nahum Barnea, a columnist for the Yediot Ahronot daily. "It (Israel) is not yet South Africa of the apartheid era, but it definitely is a member of the same family."
At Sunday's Cabinet meeting, Sharon urged countries fighting global terrorism to join Israel in condemning the court's ruling. Later, he planned to meet with the attorney general, justice minister and other top officials to discuss the ruling.
Although the court's decision is not binding, the Palestinians now hope to build international support for enforcing the ruling.
The Palestinians plan to seek support in the U.N. General Assembly, then go to the 15-nation Security Council, which could order action such as a resolution demanding enforcement of the ruling.
Israel does not recognize the court's jurisdiction in the case and said it will continue building the barrier. It has asked the United States to block U.N. action.
Washington often has used its veto in the Security Council to block resolutions critical of Israel. U.S. officials have said they disagree with the world court on the issue and that they believe no further U.N. action is necessary.
Palestinian leaders met Sunday to discuss their strategy.
Participants said they are inclined to wait until after the U.S. presidential election to go to the Security Council. The participants, speaking on condition of anonymity, said they fear a U.S. veto is more likely in the election run-up.
It will be "a very difficult long process," said Palestinian Cabinet minister Saeb Erekat.
U.N. Secretary-General Kofi Annan on Sunday urged Israel to respect the court decision, which is to be discussed at the United Nations this week.
"Whilst we all accept the government of Israel has a responsibility, and indeed the duty to protect its citizens, any action it takes has to be in conformity with international law," Annan said during a visit to Thailand.
The U.N. Mideast envoy, Terje Roed-Larsen, meanwhile, condemned Sunday's attack "in the strongest terms," a spokeswoman said.
Palestinian militants praised the court decision. "The International Court of Justice verdict is additional proof that the Zionist entity was an entity that reneged on all international norms and laws," the Hamas group said.
Grappling with the fallout from the world court decision, Sharon postponed a scheduled meeting with opposition leader Shimon Peres about joining the government.
Sharon is trying to shore up his coalition as he pushes forward with plans to withdraw from the Gaza Strip. Hard-line opposition has left Sharon with a fragile minority coalition. The two men agreed to meet on Monday, officials said.