Palestinian militant group Hamas has claimed responsibility for the shooting that killed six people on the outskirts of Jerusalem.
Two gunmen boarded a bus on Monday in one of the deadliest attacks the city has seen in recent times.
Footage from a dashboard camera showed dozens of people fleeing from a bus stop as shots rang out.
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Paramedics who responded said the scene was chaotic and covered in broken glass, with people wounded and lying unconscious on the road and pavement near the bus stop.
The two attackers, who Israeli media said were believed to have set out from two villages in the Israeli-occupied West Bank, were shot dead by police. A third suspect was later arrested.
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Israel has ordered the demolition of the two men’s homes and said every structure built without permission in the towns of Qatanna and Qubeiba would be demolished.
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Defence Minister Israel Katz added that 750 people – who he said are the men’s relatives and fellow villagers – will have their permits to work in Israel removed.
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Israel says demolishing the homes of attackers’ relatives and neighbours is a deterrent to future assaults – but human rights groups and Palestinians consider the practice a form of collective punishment, prohibited by international law.
Benjamin Netanyahu visited the scene of the shooting at Ramot Junction on Monday and has been assessing, with his heads of security, what happened.
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The Israeli prime minister sent condolences to the families of the victims and said Israel was “in an intense war against terror on several fronts”.
Among the dead in the shooting were a man of about 50 years old, three men aged around 30 and a woman of about 50.
It is understood a total of about 15 people were injured, with six in a serious condition.
