According to media reports, a police officer shot the driver dead. Three Palestinian militant groups took responsibility but Israeli police chief Dudi Cohen referred to the attacker as a "terrorist" acting on his own.
The scene on the street was described as a "nightmare" by one witness. The driver of the Caterpillar bulldozer used its scoop to overturn a bus then plowed into cars and another bus.
"I opened the window to tell him to watch his driving. He looked me in the eye and drove towards the bus and then lifted it and turned it on its side," Israeli bus driver Assaf Nadav told Reuters. Nadav's bus was filled with passengers, some of them standing, when the bulldozer driver attacked.
"Screaming would be too mild a word," said Assaf of the mood inside the bus. His passengers escaped after a policewoman broke the back window.
Hen Shimon, a 19-year-old soldier, was a passenger on one of the buses rammed by the construction vehicle. "I just got off the bus and I saw the tractor driving and knocking everything down in his path," she said. "Everything he saw he rammed. He had a gun and started shooting at a police officer."
Israel's national rescue service said at least 45 people were wounded in Wednesday's attack, the Associated Press reported.
The incident occurred in front of several media offices, including the Associated Press and the BBC. The area is under construction while a new train system is being built.
BBC footage captured the bulldozer crushing a vehicle. According to most media reports, a police officer shot the driver dead although the AP reported the attacker was killed by an off-duty soldier. At one point, witnesses said a female traffic cop shot at the perpetrator, but failed to stop the attack, according to news agencies.
The incident marks the first major violence in Jerusalem since a Palestinian attacked a seminary in March and strays from the tactics generally used in militant attacks.
An aide to Palestinian President Mahmoud Abbas spoke out against the violence: "We condemn any attacks that target civilians, whether Israelis or Palestinians, and President Abbas has been consistent in his position to condemn any attacks, including the one in west Jerusalem, that target civilians," he said.
Al Aqsa Martyrs' Brigade, the Galilee Freedom Battalion, and the Popular Front for the Liberation of Palestine all claimed responsibility. Hamas, the Palestinian militant group that runs the Gaza strip and is currently under a cease-fire with Israel, praised the attack but said it was not responsible.
In Jerusalem, where two-thirds of the residents are Jews and the rest Palestinians, Arab residents can work and travel freely.
Yosef Spielman, who witnessed the attack, told the AP the construction vehicle picked up a car "like a toy."
"I was shocked. I saw a guy going crazy," he said. "All the people were running. They had no chance."