Foreign Secretary William Hague said the Jerusalem bus bombing which claimed the life of a British woman was a "shocking and despicable act of terrorism".
In a statement to MPs, he said: "I condemn this attack in the strongest terms and call for those responsible to be held to account."
Israeli authorities described the victim as a 60-year-old woman.
Mr Hague said: "I must confirm the sad news that a British national was killed in a bus bombing in Jerusalem yesterday, which injured over 30 Israelis, eight of them seriously.
"Her family were informed last night. Our embassy in Tel Aviv and consulate general in Jerusalem are doing everything possible to assist her family and those who were travelling with her.
"I know the House will join me in sending our deepest condolences to her family at this tragic time, as well as our solidarity with the people of Israel in the face of such a shocking and despicable act of terrorism."
Mr Hague called for all sides in the Israeli-Palestinian dispute to "restore calm" following mounting violence in recent weeks.
He told MPs he was "gravely concerned about renewed rocket attacks on Israel from Gaza and the deaths of Palestinian civilians in Gaza".
He said: "I urge all parties to restore calm and work to achieve the two states, which are the only lasting hope for peace."
Shadow foreign secretary Douglas Alexander joined the Government in condemning the murder.
"This atrocity should be unequivocally condemned across the world and our condolences are with the people of Israel and the families of those affected, including those within this country," he said.Reuse content