"Jerusalem is united and was, and always will be, the eternal capital of Israel. Any attempt to harm its residents will be met with the harshest response," he said in a statement.
His remarks came a day after a young Palestinian rammed a crowd of Israeli pedestrians at high speed, killing a baby and injuring another six people. He was shot while trying to flee the car on foot and later died of his injuries.
"We will return peace and security to Jerusalem," Netanyahu said.
Israel identified the driver - a 21-year-old Palestinian from east Jerusalem - as a member of the radical Hamas movement, which recently inked a unity deal with the Fatah movement of Palestinian leader Mahmud Abbas, ending years of bitter rivalry.
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Netanyahu also lashed out at Abbas, accusing him of supporting attacks on Jerusalem, the eastern sector of which was occupied by Israel during the 1967 Six Day War and later annexed in a move never recognised by the international community.
It was the second time Netanyahu had directly accused Abbas. Yesterday he released a statement accusing the Palestinian leader of "inciting a terrorist attack in Jerusalem."
He was referring to Abbas's remarks on October 17 in which he called on Palestinians to prevent nationalist Israeli Jews from visiting the Al-Aqsa mosque compound "by all means" following a series of clashes at the site, which is holy to both Muslims and Jews.