Police are investigating if a shooting which left two dead in a bar in Israel was the first terror attack inspired by ISIS on the country as officers hunt the gunman.

The gunman entered a grocery store in central Tel Aviv, pulled out a gun and opened fire on customers at a nearby restaurant, leaving two dead and at least seven others seriously wounded.

Local media reports have named the alleged suspect as Nashad Milkham, a 29-year-old Arab Israeli man from Wadi Ara, who was arrested for trying to take a soldier's gun in 2007.

His father, a volunteer with the Israeli police, identified him after watching the CCTV footage and contacted the police.

Yesterday a tweet was posted warning of an attack on the street in Tel Aviv. The tweet claimed to be representing ISIS although the jihadi group have not claimed official responsibility for the attack.

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Israeli media have reported that this is the face of the shooter, who was seen on CCTV in a grocery shop just moments before committing the attack

Chilling: Israelis relax in a Tel Aviv bar in the run up to Shabbat before a gunman opens fire, killing two and wounding eight

The attack took place at a downtown bar Simta on the city's Dizengoff Street with witnesses describing how the shooter smiles as he sprayed bullets into the packed bar.

The first victim has been named as 26-year-old Alon Bekel, manager of the bar where the attack occurred.

Shimon Rawimi, 30, from Ofakim, was named as the second victim of the horrific attack, according to the Times of Israel.

The Israeli police are hunting for the lone gunmen, who was reportedly identified by his father after watching the CCTV footage.

The gunman's weapon was later found dumped inside a green rubbish bin after he fled the scene.

One of the suspect's cousins told an Israeli television channel that his family were 'overwhelmed' and 'devastated'.

The family member speculated that the wanted gunman would hand himself in to the police by the morning.

He also revealed that the suspect had struggled with drug problems in the past and that his arrest for assaulting a soldier in 2007 was fueled by his desire to steal his weapon to sell for drug money.

The gunman was described by a psychiatrist in 2007 as a 'young man with personality disorder and problems with drugs and alcohol.'

It is believed his troubled life may be linked to the death of one of his cousins, who he witnessed being shot and killed by a police officer. The police officer was later convicted for the killing.

Shooting: A gunman has killed two people after opening fire in a packed downtown Tel Aviv bar

Victim: 26-year-old Alon Bekel has been named as the first victim. He was the manager of the bar that was attacked in Tel Aviv

Shimon Rawimi, 30, from Ofakim, was named as the second victim of the horrific attack

Israeli media has reported the alleged murder weapon was an Italian Spectre M4 submachine gun (file photo, left) after the abandoned ammunition clip was found at the scene (right)

Nati Shakked, owner of the Simta bar on Dizengoff Street, which was hit by gunfire, said the assailant had waited on a bench outside before taking a machine-gun out of a bag and 'shooting in every direction'.

Witnesses say the man appeared to be in his mid-to-late 20s and wore protective eyeglasses and a windbreaker, while browsing dried fruit at a delicatessen before 'shooting wildly'.

The attack comes as Israelis relaxed before sundown and the beginning of Shabbat, the holiest day of the week. An eyewitness being treated for shock told the media that several of the people in the bar were there to celebrate a birthday.

It is thought that the attack was carried out by a single gunman who reportedly used an Italian made sub-machine gun, which he took from his backpack before starting the attack.

CCTV footage from a next door grocery store shows the gunman calmly selecting vegetables before pulling a sub-machine gun out of a bag and emptying his clip into the busy next door bar

A bullethole is seen in the window of a restaurant at the scene of a shooting incident in Tel Aviv

Security forces rushed to the scene of the attack on Simta bar in downtown Tel Aviv

Tel Aviv's Mayor Ron Huldai told assembled media there the attack appeared to be a 'terrorist attack motivated by nationalism

Israel's Haaretz newspaper has reported that Tel Aviv Mayor Ron Huldai said that at this stage the municipality had 'no special instructions' and asked the public to enable the security services to do their work.

He told assembled media there the attack appeared to be a 'terrorist attack motivated by nationalism,' reported The Jerusalem Post.

'What I know is that an individual came here and opened fire,' the mayor said. 'This appears to be motivated by nationalism.

'Tel Aviv has been a target in the past, and here it is rearing its ugly head again.'

The police have not officially named the gunman, although it is believed he has been identified on social media.

'All possible angles are being investigated.Large-scale police forces are conducting searches for him, police spokeswoman Luba Samri said.

The shooting comes amid a recent wave of Palestinian attacks on Israelis and just days after ISIS leader Abu Bakr al-Baghdadi threatened the Jewish state with violence.

With the suspect still at large, police declined to offer a motive

When asked about reports that the bar which was hit catered to the gay, lesbian, and transgender community, Huldai reportedly said: 'This bar doesn't have any unique significance for me.

'It's a pub on Dizengoff Street. We need to stop being hysterical. There was a terrible event here, and we will get through it just as we have gotten through similar ones in the past.'

Superintendent Micky Rosenfeld, Israel Police Foreign Press Spokesman wrote on Twitter, 'Police units concentrating on searching buildings in the area were the shooting incident took place... Investigation into incident if criminal/terrorist.'

According to eyewitness reports on Twitter, the shooter smiled before spraying bullets into the packed bar.

Israel's Haaretz newspaper has reported that Tel Aviv Mayor Ron Huldai said that at this stage the municipality had 'no special instructions' and asked the public to enable the security services to do their work

Superintendent Micky Rosenfeld, Israel Police Foreign Press Spokesman said Police units were concentrating on searching buildings in the area were the shooting took place

Two people have been confirmed dead, whereas two more are thought to be in serious condition.

Police detained one suspect, but it not thought to be the shooter who is understood to still be on the loose.

Medics said nine people were taken to hospital, two of which were pronounced dead.

An AFP reporter on the scene said patrons at the pub and cafe had been targeted, and that the sidewalk was strewn with chairs and broken glass as police forensic officers examined the scene.

Witnesses said people had braved the chilly weather to sit outside on terraces at both venues, located on Dizengoff Street, a central thoroughfare of pubs, cafes and shops.

Police were getting rides from Tel Aviv residents as they searched for the gunman in Tel Aviv

Hundreds of police were scouring the area, entering buildings in the vicinity and northward, where the assailant was believed to have fled, and police helicopters buzzed overhead.

Haim Pinto was closing his jewelry store near the pub when the shooting began.

'People started running in my direction, yelling 'terrorist, terrorist'. I saw the commotion and went right back into my store, another girl came in and we hid in the bathroom till the shooting ended,' he told AFP.

Pinto said the pub had opened 'just a few months ago'.

Five more people are said to have been moderately wounded in the attack and have been taken to hospitals in the Tel Aviv area

Wounded: At least five people have been wounded

He also told AFP that, judging by the sound of the shots, the assailant had fired single rounds rather than in automatic bursts.

Osnat David, who owns a hair salon near the pub, said she was outside smoking a cigarette just two minutes before the attack began.

'If I were there when it happened I would have been dead,' she told AFP, recounting how she hid in her salon's storage room with a few customers, clutching a pair of scissors and waiting for the shooting to end.

French tourist Alexandre Lambez was at a cafe across the street from the one targeted after the pub.

Residents were told to stay indoors while security forces searched for the suspect who remains at large

Forensic teams were working at the scene this evening

'I heard gunshots and turned around; I saw people rushing to the back of the cafe. I heard screaming and saw a man shooting. He was brown haired wearing a grey sweater and fled the scene,' he told AFP.

'I immediately thought of the attacks in Paris,' he said, referring to jihadist attacks in November that killed 130 people at bars, a concert hall and the Stade de France stadium.

Twenty Israelis, an American and an Eritrean have been killed in a wave of Palestinian attacks since October 1 including stabbings, car-rammings and gun fire targeting security forces and civilians.

Israel has seen a wave of Palestinian street attacks since October, fuelled in part by Muslim anger over stepped-up Jewish visits to Jerusalem's al-Aqsa mosque complex, also sacred to Jews, as well as long-stalled peace talks.

Emergency services took the wounded to Tel Aviv hospitals

It is not immediately clear what motivated the shooting, but it is believed it was carried out by a single gunman

Police are warning residents to stay away from the area