Shooting took place at "several scenes" around downtown Tel Aviv, Israel's national medical emergency service said, but although the motive is unclear, tensions have been heightened by other recent attacks.
At least two people have died and several more were injured in a shooting in a crowded part of central Tel Aviv, Israeli doctors have said.
The attacker opened fire in a crowded bar and restaurant area on Thursday night before fleeing, according to police.
Israel's Magen David Adom emergency service said it received reports of a shooting at "several scenes" around downtown Tel Aviv.
Two men aged about 30 were killed, the service said, and six people, three of them seriously injured, had been taken to the nearby Ichilov hospital.
The hospital confirmed two people had died and that it was treating eight wounded people.
Tel Aviv police commander Amichai Eshed said the shooter opened fire into a crowded bar at about 9pm and then fled.
He said: "Our working assumption is that he is still in the vicinity.
"As of right now, there are indications pointing to this being a terrorist attack, but I have to be very delicate about this, and say that we are also checking other leads."
Hamas, the Palestinian militant group that rules the Gaza Strip, praised the attack but did not claim responsibility.
Israeli broadcaster Kan showed live footage of officers flooding the area and training their guns on the upper story of a building as well as an explosion of some kind.
At least one shooting took place on Dizengoff Street, a central thoroughfare and popular weekend hangout.
Police urged people to avoid the area, the scene of several deadly attacks over the years, including the 2016 murder of two Israelis by an Arab citizen of Israel.
Thursday is the start of the Israeli weekend and the popular nightlife area was packed.
Prime Minister Naftali Bennett was monitoring the situation from the Israeli military headquarters, which is also in downtown Tel Aviv, his office said.
Neil Wigan, the UK ambassador to Israel, tweeted that it was "devastating to see innocent civilians brutally targeted again".
Tensions have been high after a series of attacks by Palestinian assailants killed 11 people just ahead of the holy Islamic month of Ramadan, which began nearly a week ago.
Last year, protests and clashes during Ramadan ignited an 11-day conflict in Gaza.
Israeli, Jordanian and Palestinian leaders have held several meetings in recent weeks, and Israel has taken a number of steps aimed at calming tensions, including issuing thousands of additional work permits for Palestinians from the Gaza Strip.
Tens of thousands are expected to take part in the first weekly prayers of Ramadan at the Al-Aqsa Mosque in east Jerusalem on Friday, after restrictions were lifted.