A manhunt is under way in the Israeli city of Tel Aviv after a gunman killed two people outside a popular bar.

Seven people were also wounded, four of them seriously, when the man opened fire with an automatic rifle, letting off at least 15 shots before fleeing the scene.

Security forces carried out searches throughout the night.

The incident took place in Dizengoff Street, a busy part of the city centre filled with bars and cafes.

Police spokesman Micky Rosenfeld said on Friday: "From what we know until now and as part of the ongoing investigation, there's a strong possibility that it was in fact a terrorist attack."

Security camera footage showed the gunman taking a weapon out of his backpack and then shooting at people in the street.

The two victims have been identified as Alon Bakal, 26, who was a manager at the bar targeted, and Shimon Ruimi, 30.

The suspect, a 29-year-old Israeli Arab from northern Israel, had stolen the gun from his father, who works in security, Haaretz newspaper reported.

The father recognised him son from media reports and contacted the police, the newspaper said.  

Friday's shootings follow a wave of Palestinian attacks against Israelis over the past few months.

As of 23 December, at least 21 Israelis had been killed in the recent violence, most of them in stabbings and shooting attacks by Palestinians.

At least 131 Palestinians have also been killed. More than half were said by Israel to be attackers. Others have been killed in clashes with Israeli forces.