His death throws the Middle East into renewed turmoil and will be an enormous blow to the peace process.
Police arrested the assassin who said: "I acted alone on God's orders and I have no regrets." He was later reported to be calm and unrepentant.
Shimon Peres, the foreign minister, will be the acting prime minister. Mr Rabin will be buried tomorrow. President Clinton and other world leaders will attend his funeral. Mr Clinton, his voice almost cracking with emotion as he spoke in the White House Rose Garden, described Mr Rabin as "one of the world's greatest men". He added: "As Yitzhak Rabin risked his life to defend his country, so he gave his life to bring a lasting peace."
Yasser Arafat, chairman of the Palestine Liberation Organisation, said he was "very sad and very shocked for this awful and terrible crime against one of the brave leaders of Israel and the peacemakers." John Major said: "He gave his life for peace. His best memorial will lie in achieving it."
But in Damascus, Syria, the new leader of Islamic Jihad, Ramadan Abdallah Shallah, whose predecessor was shot dead in Malta 10 days ago, said: "I am not sorry for the killing of Rabin who is the world's number one terrorist."
A witness said Mr Rabin was taken on a stretcher into a hospital emergency room with blood on his chest. "His car pulled up," said Yevgeny Furman, who was in Ichilov hospital's emergency room when the Prime Minister arrived. "Rabin was lying on the side with a bloodstain on his chest and abdomen. His eyes were closed."
As news emerged of the Prime Minister's death, people streamed to the hospital, lit candles and wept. Some shouted "Rabin is a martyr", others vented their anger at the leader of the opposition Likud party, Benjamin Netanyahu, who was against the policy of making peace with the PLO.
Police say unofficially that Mr Rabin's attacker appears to have acted alone. There was a small demonstration of Jewish settlers opposed to Mr Rabin at the peace rally but they had been carefuly cordoned off by a massive force of police who had expected trouble.
According to Israeli radio, a Jewish extremist organisation claimed responsibility for the attack but it has yet to be confirmed that it was involved. Jewish settlers and other groups have criticised Mr Rabin with increasing bitterness in recent months for his agreement with the Palestinians.
Mr Rabin had just attended a rally in the main square in Tel Aviv where 100,000 Israelis were demonstrating in favour of peace when four bullets were fired, three of which appear to have hit him. He had stayed to the end of the demonstration and had joined in a song for peace.
The assassin, Yigal Amir, is believed to be an Israeli from the Herzeliya area north of Tel Aviv who studied at Bar-Ilan University and was involved in extreme right-wing politics.
The assassination will have an explosive effect on Israeli and Middle East politics, in which Mr Rabin has played a leading role for 30 years.
Mr Rabin originally made his career in the army, fighting in the Israeli war of independence in 1948, and was chief of staff during the Israeli victory in the Six-Day War in 1967. He served as the Labour prime minister in the 1970s with varied success but was replaced by Mr Peres as Labour Party leader after defeat in the 1977 elections.
He returned to power in 1992 as prime minister, acting in close co-operation with Mr Peres. His adminstration has been almost entirely dominated by recognition of the PLO and negotiations on Palestinian self rule.
Mr Peres said last night: "The Prime Minister has been assassinated but the policies of the government have not been assassinated."
In some Palestinian areas in Gaza last night, news of the killing was greeted with jubilation.
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