Israeli security forces are hunting for two Palestinians suspected of carrying out a stabbing rampage near Tel Aviv that left three Israelis dead.

The stabbing in the town of Elad on Thursday, Israel's Independence Day, was the latest in a series of deadly assaults deep inside the country in recent weeks.

It came as Israeli-Palestinian tensions were already heightened by violence at a major holy site in Jerusalem sacred to Jews and Muslims.

Police said they were searching for two suspects, aged 19 and 20, from the town of Jenin in the occupied West Bank, which has re-emerged as a militant bastion in the latest wave of violence.

Several attackers have come from in or around Jenin, and Israeli forces have launched raids that have triggered gun battles there.

"We will get our hands on the terrorists and their supportive environment, and they will pay the price," Israeli Prime Minister Naftali Bennett said after meeting senior security officials late on Thursday.

Authorities said the attackers fled in a vehicle.

Medics described a horrific scene in Elad, an ultra-Orthodox town near Tel Aviv.

In addition to the three killed, four others were wounded, one of them critically.

Israel marked its Independence Day on Thursday, a festive national holiday in which people typically hold barbecues and attend air shows.

Defence minister Benny Gantz extended a closure on the West Bank, imposed ahead of the holiday to prevent Palestinians from entering Israel, to remain in effect until Sunday.

In Washington, US secretary of state Antony Blinken condemned the "horrific attack targeting innocent men and women".

Palestinian President Mahmoud Abbas, whose government administers autonomous zones in the Israeli-occupied West Bank and cooperates with Israel on security, also condemned the attack.

"The killing of Palestinian and Israeli civilians leads only to more deterioration at a time when all of us try to achieve stability and prevent escalation," the official Wafa news agency quoted him as saying.

The Palestinian militant group Hamas, which rules the Gaza Strip, praised the attack and linked it to violence at the Jerusalem holy site.

"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.

It lies at the emotional heart of the conflict, and Palestinians and Israeli police have clashed there repeatedly in recent weeks.

Under informal arrangements known as the status quo, Jews are allowed to visit the site, but not pray there.

In recent years, they have visited in ever-increasing numbers with police escorts and many have discreetly prayed, angering the Palestinians as well as neighbouring Jordan, which is the custodian of the site.

The Palestinians have long feared that Israel plans to eventually take over the site or partition it.

Israel says it is committed to maintaining the status quo, and accuses Hamas of inciting the recent violence.

At least 18 Israelis have been killed in five attacks since March, including another stabbing rampage in southern Israel, two shootings in the Tel Aviv area, and a shooting last weekend in a West Bank settlement.

Nearly 30 Palestinians have died in violence - most of whom had carried out attacks or were involved in confrontations with Israeli forces in the West Bank.

But an unarmed woman and two apparent bystanders were also among those killed.

Israel and Hamas fought an 11-day war a year ago, fuelled in large part by similar unrest in Jerusalem.

Israel captured the West Bank, Gaza and east Jerusalem - which includes Al-Aqsa and other major religious sites sacred to Jews, Christians and Muslims - in the 1967 Middle East war.

The Palestinians want all three territories to form their future state. The last serious peace talks collapsed more than a decade ago.