The Palestinian militant group Islamic Jihad claimed responsibility.
The assailant's motives were not immediately known, but Israeli officials said that since the start of the U.S.-led offensive against Iraq (news - web sites) 10 days ago, they've been on high alert for a fresh wave of bombings by Palestinian militants.
The blast went off shortly before 1 p.m. near Cafe London, an outdoor coffee shop along Netanya's crowded pedestrian mall. A security guard prevented the bomber from entering the cafe, and the assailant instead blew himself up near a group of soldiers standing outside, police and witnesses said.
"There was a huge explosion," said a worker at a nearby restaurant who would only give his first name, Herzl. "I saw two soldiers thrown to the ground and the terrorist ripped to pieces at the entrance."
At least six of the wounded were in serious condition, hospital officials said.
The bomber's mangled body lay on the pavement. In a telephone call to The Associated Press, the Islamic Jihad group said the assailant was from the West Bank city of Nablus, but would not give his name.
Outside the cafe, chairs and tables were overturned, and the sidewalk was littered with torn clothing, broken plates and bits of flesh.
Israeli officials said they have been watching for signs that militants are planning new attacks. "The (Palestinian) motivation to harm Israel and to help the Iraqi struggle is well known to us and it comes across in all the intelligence reports," said Israel's police minister, Tsahi Hanegbi.
It was the first suicide bombing since the outbreak of the Iraq war. The last such attack in Israel came March 5, when 17 Israelis were killed in a bus blast in the northern port city of Haifa.
Sunday also marked Land Day, an annual day of marches and protests by Israel's Arab citizens against land seizures.
In the past 30 months of fighting, the militant groups Hamas and Islamic Jihad have carried out scores of bombings in Israeli towns.
Netanya in northern Israel has been a frequent target, in part because of its proximity to the West Bank. In the deadliest bombing of the past 30 months, a Hamas bomber attacked the Park Hotel in Netanya during the Passover Holiday a year ago, killing 29 people participating in a holiday meal.
David Baker, an official in Prime Minister Ariel Sharon (news - web sites)'s office, said the bombing was a "brutal reminder of the cruelty of Palestinian terrorism."
Saeb Erekat, a Palestinian Cabinet minister, said the Palestinian leadership "condemns targeting civilians, whether Palestinian or Israeli." He urged the international community to step up efforts to revive Mideast peace talks.
Sunday's bombing also underscored the difficulties facing Mahmoud Abbas, the newly appointed Palestinian prime minister. Abbas, widely known as Abu Mazen, has the support of international Mideast mediators, with the expectation that he will work hard to rein in Palestinian militants.
Abbas was holding talks with various Palestinian factions in Gaza on Sunday.
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