A Palestinian rammed a car into a group of Israeli soldiers in Jerusalem wounding 12 of them in an attack that Islamist group Hamas hailed as a 'practical response' to Washington's controversial Middle East peace plan.

A manhunt was underway today for the driver who fled the scene outside a popular Jerusalem entertainment spot.

Israeli military spokesman Jonathan Conricus said one of the 12 injured soldiers in Jerusalem was seriously hurt.

The attack occurred shortly before 2.00am (2400 GMT) outside the First Station, an historic Ottoman-era railway terminus that has been turned into a cultural and entertainment centre.

The First Station is located along David Remez Street, which is close to the Arab neighbourhoods of eastern parts of the city that Palestinians want for a state. A theatre and late-night restaurants and bars are also located along the road.

The attacker struck in the street outside where the soldiers had been marching, the army said.

One of the soldiers was 'severely injured' and has been evacuated to hospital.

Israeli policemen inspect the site of a car-ramming attack carried out by a Palestinian in Jerusalem in the early hours of this morning

Police and the Israeli Defence Forces launched a manhunt this morning after a Palestinian motorist rammed his car into a group of 12 Israeli soldiers outside the First Station entertainment spot in Jerusalem. Pictured: Israeli police officers inspecting the scene today

Israeli soldiers can be seen at the site of this morning's car-ramming outside a popular entertainment venue in Jerusalem

Police said the car believed to have been used in the attack was later recovered abandoned in the West Bank town of Beit Jala, just outside of Bethlehem, according to a report by the Times of Israel.

Public radio said they were new recruits on their way to an induction ceremony at Jerusalem's Western Wall, the holiest site where Jews can pray.

'During the incident, a terrorist sped his car towards (Israeli) soldiers,' the army said.

The vehicle believed to have been used in the ramming incident is pictured here in the town of Beit Jala, which is outside Jerusalem, earlier today

Israeli troops 'are currently pursuing the terrorist who escaped the scene.'

Police spokesman Micky Rosenfeld said 'the incident is being investigated as a terror attack.'

There have been car-rammings targeting Israeli troops in the past, in the occupied West Bank as well as Jerusalem.

Car-ramming is a method that has been used by Palestinians against Israeli troops in the past. Pictured: Police at the scene of the crime in Jerusalem this morning

Israeli soldiers stand guard at the site of a car-ramming in Jerusalem this morning

Israeli police can be seen at the scene of the car-ramming this morning, where 14 people were injured and one of the Israeli troops was left in a serious condition

Israeli police officers inspect the scene of a car-ramming attack early this morning in Jerusalem

The Islamist Hamas movement, which controls Gaza, hailed the car-ramming as a 'practical response' to US President Donald Trump's controversial Middle East peace plan.

In a statement, Hamas spokesman Hazem Qassem said the attack was part of the 'resistance operation' but stopped short of claiming responsibility.

It came amid heightened tensions between Israelis and Palestinians, since the release last month of US President Donald Trump's long-awaited peace proposals.

Emergency services attend the scene of a car-ramming this morning in Palestine

The scene of the incident can be seen after evidence was collected by Israeli officers early this morning in Jerusalem

Palestinian Hamas militants take part in a rally in 2016 to mark the twelve year anniversary of the death of late Hamas leader Sheikh Ahmed Yassin, who was killed in an Israeli attack

The Palestinians have angrily rejected the plan, which unilaterally gives Israel most of what it has sought in previous negotiations.

There have been sporadic clashes between Palestinian protesters and Israeli troops since the release of Trump's proposals.

In the northern West Bank town of Jenin, Israeli forces shot dead 19-year-old Yazan Abu Tabikh on Thursday, in an incident that left seven others wounded.

The army said troops had 'identified a number of armed terrorists who hurled explosive devices and fired towards them. The forces responded with riot dispersal means.'

On Wednesday, a 17-year-old was shot dead by Israeli forces during a protest in the flashpoint West Bank city of Hebron.

Palestinians carry the body of Yazan Abu Tabekh during his funeral in the West Bank city of Jenin this morning. The 19-year-old Palestinian was killed in clashes with Israeli troops, according to Palestinian hospital officials.

A Palestinian woman holds a placard with a defaced portrait of US President Donald Trump during a demonstration by female supporters of the Hamas movement against the US Middle East peace plan in Gaza yesterday

Young Palestinian girls hold petitions with a map of British mandate Palestine (left) and a current map of the Palestinian territories without Israeli-annexed areas and settlements (right), as they take part in a demonstration by women supporters of the Hamas movement against President Trump's plan for Middle East, in Gaza yesterday. Hamas said today's attack was a 'practical response' to the peace plan

Israeli military described the teenager as a 'violent rioter' armed with a Molotov cocktail who posed a threat to troops.

Later, Israeli police shot dead a gunman who opened fire on officers in Jerusalem's Old City on Thursday.

'A terrorist opened fire at a border policeman. One policeman was injured lightly in the shooting,' Rosenfeld said, adding that the assailant was then 'shot and killed' by police.

Israeli security and emergency personnel stand next to the body of a suspected Palestinian assailant at the scene of a suspected shooting attack in which an Israeli policeman was injured lightly near in Jerusalem's Old City today

Since Trump's plan was announced, there has been almost daily fire from Gaza into southern Israel, drawing Israeli retaliation.

In the Gaza Strip, Israeli aircraft struck Hamas positions early Thursday, after Palestinians fired rockets or mortar rounds at Israel and launched incendiary balloons.

'Fighter jets and (other) aircraft targeted Hamas terror targets throughout the Gaza Strip,' an army statement said.