The girl and her parents, who were injured in the attack, were US citizens, said Jerusalem mayor Nir Barkat.
The violence came after months of tensions between Jews and Palestinians in east Jerusalem – the section of the city the Palestinians demand as their future capital. The area has experienced near-daily attacks on the city’s light rail by Palestinian youths since a wave of violence over the summer, capped by a 50-day war between Israel and Hamas militants in Gaza. The car struck the station near the national HQ of Israel’s police force. Police spokesman Micky Rosenfeld said the driver got out of the car and tried to flee before he was shot by a police officer.
He said footage captured by security cameras indicated the driver deliberately struck people waiting at the stop.
“We look at this incident as a terrorist attack,” Mr Rosenfeld said. The area was cordoned off and forensic and bomb disposal experts were on the scene examining the car.
The struck baby later died of her injuries.
“She is a pure baby girl who hasn’t done anything bad to anyone,” Shimshon Halperin, the girl’s grandfather, who is Israeli, told Channel 2 TV. “She was murdered for no reason.”
It was not immediately clear if the baby and her parents also held Israeli citizenship.
Mr Rosenfeld said the driver, from the east Jerusalem neighbourhood of Silwan, was in a serious condition. He added that he “has served time in Israeli prison for terrorism”. Israeli media reported he was a member of the Islamic militant group Hamas.
Israeli prime minister Benjamin Netanyahu blamed Palestinian president Mahmoud Abbas for adding fuel to the soaring tensions in Jerusalem with recent antagonistic comments. Mr Abbas “just a few days ago incited [Palestinians] to attack Jews in Jerusalem”, Mr Netanyahu said.
Mr Abbas had called on Palestinians to prevent Jews “by any means” from visiting a Jerusalem holy site sacred to both Muslims and Jews. He was referring to the Temple Mount, the hilltop compound where the two biblical Jewish Temples stood. It is also sacred to Muslims, who refer to it as Noble Sanctuary, the place from where they believe the Prophet Mohammed ascended to heaven. The site is the holiest in Judaism and the third holiest in Islam, and a frequent flashpoint for Palestinian demonstrations.
The Israeli government informed the US that Hamas was believed to be responsible for the attack, an American official said. It was not clear, however, if the attack was the work of just one person, the official added.
Silwan, a predominantly Arab neighbourhood, has seen tensions increase in recent weeks since Jewish nationalists moved into several homes. Nationalist groups are intent on solidifying the Jewish presence in east Jerusalem, but Palestinians consider their arrival to be a provocation.
Mr Barkat said the police presence would be beefed up. “The situation in Jerusalem is intolerable and we must act unequivocally against all violence taking place in the city,” he said.