The mid-morning blast, which rocked the city centre and sent thick smoke scudding across the skyline, came as Syria's opposition was meeting in Cairo to discuss proposals by its leader to hold conditional talks with Syria's regime.
"The terrorist explosion killed and wounded a large number of civilians," the official SANA news agency said.
Images of bloodied bodies lying on the ground and of blazing vehicles were broadcast by the official television channel Al-Ekhbariya, which said children were among the wounded, as the blast occurred near a school in the Mazraa district.
Ambulances sirens rang out, and machine gun fire was also heard in the area.
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"The agenda is long and among the issues to be discussed is the initiative of Ahmed Moaz al-Khatib," Khaled Nasser told AFP.
Coalition chief Khatib has offered to negotiate with officials of President Bashar al-Assad's regime who have no "blood on their hands" -- naming Vice President Faruq al-Sharaa as a possible pointman for the talks.
Khatib's initiative has been welcomed by the Arab League and the United States as well as by two of Syria's chief allies, Iran and Russia.
But the Syrian National Council, a key component of the Coalition, has rejected any possibility of dialogue until Assad steps down.