A third Israeli has died after an attack by a Palestinian man who opened fire into a crowded bar in central Tel Aviv.

It came as Israeli security forces said they had hunted down and killed the attacker early on Friday.

The shooting on Thursday evening in an area packed with people in bars and restaurants caused scenes of panic in the heart of the bustling city.

Two people were instantly killed and at least 10 were wounded.

A Tel Aviv hospital on Friday afternoon announced that Barak Lufan, 35, who was wounded in the shooting had succumbed to his injuries.

It was the fourth deadly attack in Israel by Palestinians in three weeks, and came at a time of heightened tensions around the start of Ramadan.

Tens of thousands of Palestinians attended the first Friday prayers of the Muslim holy month in Jerusalem amid a heavy Israeli security presence, but there were no immediate reports of unrest.

Israeli Prime Minister Naftali Bennett met senior security officials and announced that a major crossing in the northern West Bank near the attacker’s hometown would be closed indefinitely.

“Every murderer will know that we’ll get to him, and anyone who helps terrorists should know that the price he will pay will be unbearable,” Mr Bennett said.

Israel proceeded with plans to allow Palestinian women, children and older men from the occupied West Bank to enter Jerusalem for prayers. Protests and clashes in the holy city during Ramadan last year eventually ignited an 11-day Gaza war.

Thursday’s shooting took place in a crowded bar on Dizengoff Street, a central thoroughfare that has seen other attacks over the years. Thursday night is the beginning of the Israeli weekend, and the area was busy.

Videos showed dozens of terrified people running through the streets as police searched for the attacker and ordered people to stay indoors.

The two killed on the spot were identified as Tomer Morad and Eytam Magini, childhood friends in their late 20s from Kfar Saba, a town just north of Tel Aviv.

Hundreds of Israeli police officers, dog units, and army special forces conducted a massive manhunt throughout the night across Tel Aviv, searching building by building through densely populated residential neighbourhoods.

Early on Friday, authorities said they had found the attacker hiding near a mosque in Jaffa, an Arab neighbourhood in southern Tel Aviv, and killed him in a shootout.

The Shin Bet internal security service identified the attacker as Raad Hazem, a 28-year-old Palestinian from Jenin, in the occupied West Bank.

It said he did not belong to an organised militant group and had no prior record. It said he had entered Israel illegally without a permit.

The Jenin refugee camp was the scene of one of the deadliest battles of the second Palestinian intifada, or uprising, 20 years ago.

In April 2002, Israeli forces fought Palestinian militants in the camp for nearly three weeks. Twenty-three Israeli soldiers and at least 52 Palestinians, including civilians, were killed, according to the United Nations.

The Israeli military frequently conducts arrest raids in Jenin, often coming under fire. The Palestinian Authority, which administers parts of the occupied West Bank and co-ordinates with Israel on security matters, appears to have little control over the area.

Including Thursday’s attack, 13 Israelis have been killed in recent weeks in one of the worst waves of violence in years.

The militant Hamas group that rules the Gaza Strip praised the attack but did not claim responsibility. President Mahmoud Abbas, who heads the Palestinian Authority, condemned the attack, saying the killing of civilians on either side “can only lead to a further deterioration of the situation”.

All the attackers appear to have acted individually or with minimal support from a small cell. Three of them are believed to have identified with the so-called Islamic State group, but militant groups do not appear to have trained them or organised the attacks.

Israel allowed Palestinian women, children and men over 40 from the occupied West Bank to pray at the Al-Aqsa Mosque in east Jerusalem on Friday. The Muslim body that oversees the site said 80,000 people attended the weekly prayers.

Police mobilised thousands of forces in and around the Old City, home to Al-Aqsa and other holy sites sacred to Jews, Christians and Muslims.

The Al-Aqsa Mosque is the third holiest site in Islam and sits on a hilltop that is the most sacred site for Jews, who refer to it as the Temple Mount. The holy site has long been a flashpoint for Israeli-Palestinian violence.