After eight days of fighting that have left more than 150 Palestinians and five Israelis dead, a ceasefire was agreed last night between Hamas and the Israeli government. It is set to come into effect at 7pm London time.

Palestinians, under a barrage of Israeli missile fire, and Israelis, who have come under militant rockets for more than a week, were forced to wait and see whether today’s sharp spike in violence would scuttle fast moving peace talks between Cairo and Jerusalem, and which involved a number of key international players, including Hillary Clinton, who flew to the region last night.

It is understood that while Israel has agreed to a truce, it will not lift its controversial blockade of the Gaza Strip.

The prospect for any sort of peace deal seemed unlikely at lunchtime when a bomb hidden in the Number 142 bus in Tel Aviv exploded without warning as it passed through King Saul Boulevard, the military and cultural artery of Israel’s populated heartland.

More than 20 people were injured, two seriously, as black smoke billowed into the air above Israel army headquarters, the Ministry of Defence, and Tel Aviv’s opera house, law courts and art museum. Meanwhile 18 Palestinians were killed in Israeli attacks on Gaza.

Police in Israel’s largest city cast a dragnet over the city, searching for two women that some eyewitnesses suspected of planting a bomb and then escaping. The nearby Azrieli Mall was closed and security personnel across the country were placed on high alert.

Two suspects were arrested several hours later on a road leading to the West Bank.

“We have been on alert for the past week, prepared for the possibility of incidents, of terror attacks, like this,” Police Commissioner Yohanan Danino told reporters at the scene.

It was the first attack for six years in Tel Aviv, though it has been targeted by Hamas rockets in the past week, all of which were intercepted.

“There was a horrible explosion. We were sure at first that it was a strike on Tel Aviv and the sirens just didn’t go off,” said Tomer Simon, whose office overlooks the scene.

“I opened my office window and saw the bus wrecked. I ran and tried to help those who were injured as much as I could. All the windows of the bus were smashed,” Mr Simon told the Israeli Ynet news website.

Last Saturday, Al-Aqsa, the Hamas TV station, which has since been targeted in Israeli attacks on Gaza, released a video taunting Israelis in Hebrew: “We miss the suicide bombings. Wait for us at bus stops and cafes.”

In Gaza, Hamas spokesman Sami Abu Zuhri welcomed the explosion. Celebratory sweet cakes were reportedly handed out in Gaza's main hospital.

”Hamas blesses the attack in Tel Aviv and sees it as a natural response to the Israeli massacres...in Gaza,“ Mr Abu Zuhri told Reuters. ”Palestinian factions will resort to all means in order to protect our Palestinian civilians in the absence of a world effort to stop the Israeli aggression.“

Meanwhile, Hamas rained down more than 115 rockets across southern Israel, sending people running for cover all day. Seven people were seriously injured. One barrage aimed towards Beersheba was intercepted by the Iron Dome missile defence system. A house in Beer Tuvia was struck twice.

Israeli forces kept up a continuous bombardment of more than 100 targets across the Gaza Strip, including four rocket-launching cells in Khan Younis and Jabalia. At least eight people were killed by Israeli airstrikes that demolished several houses and targeted smuggling tunnels under the Egyptian border.

The army said it also attacked “several buildings that belong to senior Hamas operatives and serve as command and control centers.”

A four-year-old child was killed and her mother wounded in an Israeli airstrike on al-Nuseirat refugee camp. A two-year old child was killed in an airstrike on Nima tower block in Gaza City, which houses the offices of Agence France-Presse. Foreign reporters protested to the Israelis, saying they were being deliberately targeted. The Israeli army said they had destroyed a ”militant communications centre“ hidden in the building.

”The population lives in constant fear; there is no safe space remaining in Gaza,” reported UNRWA, and blamed “intensive tank fire in the border areas” for “creating panic among the population.”

In Cairo, US Secretary of State Hillary Clinton, arrived from meetings with Israeli and Palestinian leaders to encourage negotiations for a long-term armistice that would end the fighting and demilitarise the Gaza Strip under joint US-Egyptian-Israeli supervision.

“Any serious long-term deal that comes out of this has got to ensure that Hamas is not re-armed,” Foreign Office Minister for the Middle East Alistair Burt told The Independent in Jerusalem. “We can’t go on as we are. There has to be a sustainable Gaza and that clearly implies that the missiles that are smuggled through the tunnels – that’s got to stop. Clearly there is a route. All those involved in the route have an obligation to make sure that this stops and Israel is right to insist upon that.”