A Palestinian gunman shot dead at least eight people at a Jewish religious school in Jerusalem, but Israel said the killings would not derail US-sponsored peace talks.

'It was a slaughterhouse,' Yehuda Meshi-Zahav, head of the Zaka emergency service, said of the scene on Thursday night at the Merkaz Harav seminary, one of the city's most prominent Jewish educational centres.

There was no immediate claim of responsibility for the attack, which was greeted with celebrations in the Hamas-controlled Gaza Strip. A recent Israeli offensive in Gaza killed more than 120 Palestinians, about half of whom were identified as civilians.

'Tonight's massacre in Jerusalem is a defining moment. Those celebrating these murders have shown themselves to be the enemies not only of Israel, but the enemies of peace and reconciliation,' said Mark Regev, Israeli Prime Minister Ehud Olmert's spokesman.

Israeli Foreign Ministry spokesman Arye Mekel said peace talks would continue with Palestinian President Mahmoud Abbas, who denounced the shooting.

The attack could further complicate US efforts to try to broker a statehood deal by the end of 2008.

Washington has tried to persuade Israel to ease some travel restrictions on Palestinians in the occupied West Bank, but the attack makes that far less likely to happen soon. Jerusalem sources said they believed the attacker was from East Jerusalem.

US President George W. Bush called Olmert. 'I told him the United States stands firmly with Israel in the face of this terrible attack,' Bush said in a statement.

UN Secretary-General Ban Ki-moon and the foreign ministers of Germany, France and Britain were among the first to strongly condemn the killings.

The attack followed a visit by US Secretary of State Condoleezza Rice, who persuaded Abbas to resume peace talks he suspended over the bloody Gaza assault.

Witnesses said the gunman entered the crowded seminary and fired an automatic weapon at students in its library. Jerusalem police chief Aharon Franco said the attacker had used a cardboard box to hide his gun.

Emergency worker Yerach Tucker said bloodied students ran out of the seminary. 'I went into the library and there were youngsters lying there, dead with bibles -- with holy books in their hands,' Tucker told reporters.

In addition to those killed, at least 10 people were wounded, three of them seriously, emergency workers said.

It was the highest Israeli death toll since April 17, 2006, when 11 people were killed and over 60 wounded in a suicide bombing during the Passover holiday in Tel Aviv.

Outside the Jerusalem seminary, a crowd shouted 'Death to the Arabs'.  In Gaza, Hamas official Sami Abu Zuhri said the group 'blesses the heroic operation in Jerusalem, which was a natural reaction to the Zionist massacre'. - Reuters