It was the first Palestinian attack reported in Israel's commercial capital since a soldier was stabbed to death two months ago.
Passengers on the bus said the assailant, later identified by police as a Palestinian from the occupied West Bank, stabbed the driver and then others as the vehicle slowed to a stop.
"The terrorist had murder in his eyes," one passenger, identified only as Orly said on Israel Radio.
As screaming passengers spilled out of the bus, prison officers in another vehicle at one of Tel Aviv's busiest intersections saw the suspected attacker trying to flee and gave chase.
One of the officers shot him in the leg. Television footage showed the alleged assailant, whom police said was aged 23, lying face down in mud, his arms handcuffed behind his back.
The Magen David Adom ambulance service said seven people were wounded in the stabbing, four of them seriously, and two other passengers suffered injuries while running off the bus.
During the attack, the bus driver managed to alert his dispatcher and plead over the phone for help.

Latest News from World News Desk