Police said they suspect it was a militant attack and that the assailant fled in a vehicle.
At least three people were killed in a stabbing attack near Tel Aviv on Thursday night, Israeli medics said.
Alon Rizkan, a medic with Israel's Magen David Adom rescue service, described a “very difficult call” when he arrived at the scene in Elad, an ultra-Orthodox town near Tel Aviv.
He said he identified three dead people at various locations and four others who were wounded, two seriously.
Police said they suspect it was a Palestinian militant attack and that the assailant fled in a vehicle.
They blocked the area and urged the public to stay away from the area. A helicopter could be seen hovering over the area in police footage as they launched a manhunt for the assailant.
The attack occurred as Israel marked its Independence Day.
Israeli-Palestinian tensions have soared in recent weeks, following a series of attacks in Israel, military operations in the occupied West Bank and violence at the holy site in Jerusalem.
The Palestinian militant group Hamas, which rules the Gaza Strip, praised the attack and linked it to violence at a holy site in Jerusalem, but did not claim responsibility for it.
“The storming of Al-Aqsa Mosque can’t go unpunished," Hamas spokesman Hazem Qassem said.
“The heroic operation in Tel Aviv is a practical translation of what the resistance had warned against.”
The Al-Aqsa Mosque compound is the third holiest site in Islam and is built on a hilltop that is the holiest site for Jews, who refer to it as the Temple Mount.
Early Thursday, Israeli police entered the site to clear away Palestinian protesters, after Jewish visits that had been paused for the Muslim holidays resumed. Scuffles broke out when the police went to arrest one of the Palestinians gathered.