The lone casualty in the bombing at a bus stop in central Jerusalem was a British woman studying at Hebrew University.
The Israeli Air Force struck targets in the Gaza Strip in the early hours of Thursday, a day after Palestinian militants fired about a dozen rockets and mortars across the border.
Prime Minister Benjamin Netanyahu said Wednesday that Israel will react firmly, responsibly and wisely to a recent wave of Palestinian violence.
Violence between Israel and militant Palestinians rose sharply this week with a bombing in central Jerusalem and a dramatic increase in rocket attacks on southern Israel.
One woman was killed and at least three dozen people injured when a bomb exploded in central Jerusalem.