Three people were killed in an attack in the central Israeli city of Elad, as the Jewish state marked the anniversary of its founding on Thursday, and follows a brief lull in deadly unrest.
Police said that a manhunt using helicopters and roadblocks had been launched, with a larger number of officers and army units pursuing "one or two terrorists."
The Magen David Adom emergency response service, which confirmed the deaths, said three others were in a serious condition after the incident, which follows a series of fatal attacks committed by Palestinians and Israeli Arabs in recent weeks.
Israel's Foreign Minister Yair Lapid said "the joy of independence day had been interrupted in an instant," condemning the "murderous attack in Elad."
Two others suffered moderate or light injuries, according to the MDA, which is Israel's version of the Red Cross.
Few details had emerged on how the attack was carried out, but several Israeli media reports said the assailants carried knives, or an axe. Other reports suggested the attackers had used firearms.
"The terrorists have not yet been apprehended," added the police, who said it appeared the violence played out across several locations in the same area.
Prime Minister Naftali Bennett was due to meet his security chiefs on the incident, while Defence Minister Benny Gantz announced that a closure of the occupied West Bank -- in place for the Israeli independence day -- would remain in force through Sunday.
Israeli police said the Palestinians who carried out the attack in Elad came from the district of Jenin in the northern West Bank.
Crossings into Israel from the West Bank have been closed since Tuesday as a security measure while Israel marked its annual memorial and independence days this week.
The attackers struck in a park in Elad where families had gathered to celebrate Independence Day, and on a main street.
"We were in the synagogue when the warden shouted: 'Terrorist! Terrorist!'," an eyewitness named Mordechai Chachmon said, the Times of Israel reported.
"We went outside and we saw [an attacker] running along a path… and hitting anyone in front of him with an axe to the head. Both of [the attackers] were shouting Allahu Akbar [God is greatest]."
A man aged 35 and two 40-year-old men were killed. Two were fathers of five children each and the third a father of six.
The attackers are reported to have fled the scene in a vehicle. Police have set up roadblocks and deployed a helicopter in the search for the suspects.
Israeli Prime Minister Naftali Bennett said the attackers would be caught and would "pay the price".