Indian intelligence services said it is highly likely the bomb that tore through a cafe in Pune, India, on Saturday was meant for the local Chabad House, located several dozen meters from the site of the blast.
The blast killed at least 9 people and wounded at least 53 others.
The blast threatened to damage new efforts to reduce tensions between India and Pakistan, with Hindu nationalist leaders already placing the blame for the explosion at India's Muslim neighbor.
It remains unclear whether the coffee shop, a popular tourist spot, was the target for the bombing because the bomb apparently detonated after a waiter opened a bag left on the premises.
One possibility being investigated is that the bag was meant to be picked up at the cafe and taken to the Chabad House.
"I came running to the bakery after hearing the explosion. I found people lying all over the place," said Abba More, who lives nearby.
One foreigner was among those killed and another was wounded, he said, adding that their nationalities were not immediately known.
The building and nearby shops were badly damaged and splattered with patches of blood and several limbs.
Harsh Vardhan Patil, a state minister, said 42 people had been hospitalized with injuries, six of them in critical condition.
Many customers of the cafe, known as the German Bakery, are foreign travelers.
India's Home Minister Palaniappan Chidambaram said the blast was potentially the most significant terrorist incident since the Mumbai attacks.
"All the information available to us at the moment points to a plot to explode a device in a place that is frequented by foreigners as well as Indians," he told the Press Trust of India news agency.
He said the government was waiting for the findings of forensic experts before drawing any conclusions.
If it is confirmed to be a bombing, it would be the first major terror strike in India since 10 Pakistan-based gunmen rampaged through hotels and the train station in the financial hub of Mumbai for 60 hours in November 2008.
India has warned of a possible new attack in recent weeks and put its airports on alert for a possible hijacking attempt. The blast came as ties between India and archrival Pakistan appeared to be warming. The two countries agreed to hold talks in New Delhi on February 25, their first formal negotiations since the Mumbai attacks.
Asked whether the blast was linked to the India-Pakistan talks, Home Secretary G.K. Pillai said: "Forensic investigations have just begun. Till they are completed, we will not know who is [involved]."
But Gopinath Munde, a senior Hindu nationalist Bharatiya Janata Party leader, said that this "again is an attack from Pakistan."
Police, anti-terror squads and forensic experts were at the scene investigating the explosion, while a team of federal investigators was flying to the city.
Pillai said the Osho Ashram mediation center of a famed Indian guru, about 200 yards from the cafe, had been surveyed by David Headley, who is facing charges in Chicago that he helped scout out the targets for the Mumbai attack.
Ashok Chavan, the state's top elected official, told reporters that Headley had also surveyed the Chabad Jewish center near the cafe. He said no one has so far claimed had responsibility for Saturday's attack.
In its aftermath, Mumbai and other parts of Maharashtra state were put on high alert, said Chhagan Bhujbal, the state deputy chief minister.
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