A three-month-old baby was killed in Jerusalem and eight other people wounded – one seriously – in what Israel police described as a “terrorist attack” when a speeding car drove onto a pavement crowded with pedestrians alighting from the city’s light railway.

The child killed in the attack was later named as Chaya Zissel Braun, a US citizen, whose family had been visiting the Western Wall.

Video footage posted on social media showed a car on the main road slowing slightly before crossing to the train tracks and climbing on to the station pavement, ploughing through the people standing on it.

The incident occurred on Wednesday evening at about 6pm on Road 1 – one of Jerusalem’s main arterial roads – as passengers were getting off one of the city’s light railway trains at a stop on Ammunition Hill near the national police headquarters.

A paramedic who was at the scene said he treated the baby’s mother for a serious head wound and that the car had hit the baby’s stroller.

The driver of the car, a 20-year-old resident of Silwan in East Jerusalem named as Abed a-Rahman a-Shaludi, was shot by police officers as he apparently attempted to flee the scene. He died a few hours later.

Although Shaludi’s family told journalists later that the incident had been an accident, Israeli officials said he was a former Palestinian prisoner and “a member of Hamas” who had served several prison sentences including for preparing petrol bombs.

Mourners carry the body of Chaya Zissel Braun during her funeral in Jerusalem. Photograph: Menahem Kahana/AFP/Getty Images

Silwan, a neighbourhood bordering on Jerusalem’s old walled city, has been a focal point of violence in past weeks with Palestinians protesting against Israeli settlers moving into houses in the predominantly Palestinian-populated district.

Following the incident Silwan residents clashed with police, who responded to rocks and petrol bombs with stun grenades that could be heard echoing across the city.

Police clashed with stone-throwing protesters elsewhere in the city as well, with one person injured and two more arrested.

Images of Shaludi posted on websites linked his picture with an image of five-year-old Einas Khalil, a Palestinian girl who was run over and killed this week by a resident of the Yitzhar settlement in the West Bank town in a hit and run.

The Israeli prime minister, Binyamin Netanyahu, immediately blamed Palestinian President Mahmoud Abbas, accusing him of “incitement to an attack on Jews in Jerusalem”. Netanyahu has ordered police reinforcements in Jerusalem following consultations with the public security minister, Yitzhak Aharonovitch.

“This is how Abu Mazen’s [Abbas’s] partners in government work. This is the same Abbas that only a few days ago called for harming Jews in Jerusalem,” said Netanyahu.

Netanyahu was referring to to Abbas’s call last week to Palestinians to use “any means” to prevent Israeli settlers accessing the Temple Mount.

Photographs from the scene showed a silver Volkswagen hatchback car, its doors open, resting on a fallen lamppost. The car in the images appears to match the one caught on video.

Although details were sketchy, police said they suspected the incident was what is termed a “run-over” attack, similar to past cases where vehicles have been driven into passersby.

That claim, however, was denied by Shaludi’s family who told Israeli media: “We are certain that this was a regular car accident. Over the past few days he did not feel well and it could be due to his illness that he lost control of the wheel. Many similar accidents have occurred in many places and there was no suspicion of a terrorist attack.

“A few days ago a Jewish settler knocked over two girls near Ramallah. He killed one and the other is in serious condition. The police immediately said it was a car accident. In our case they said the opposite in seconds. This is because the driver was an Arab driver. When a Jewish driver was involved in an accident the attitude was different and no one shot him.”

East Jerusalem has experienced months of unrest since a Palestinian teenager was kidnapped and burned to death by Jewish extremists in early July.

The light railway that runs through the city has been the target of repeated stone throwing incidents since the summer.

Tensions have been high in Jerusalem since the 50-day Gaza war that ended in August and the killing of a Palestinian teen in the city by alleged Israeli assailants to avenge the deaths of three abducted Israeli youths in the occupied West Bank.

In Washington, state department spokeswoman Jen Psaki said: “The United States condemns in the strongest possible terms today’s terrorist attack in Jerusalem.” Psaki offered condolences to the family of the baby, “reportedly an American citizen”.

“We urge all sides to maintain calm and avoid escalating tensions in the wake of this incident,” Psaki said.