* Bulldozer rams police car and bus in Jerusalem

* Palestinian driver shot dead

* Israel calls it "terrorist" attack

(Adds traffic camera video)

By Ari Rabinovitch

JERUSALEM, March 5 (Reuters) - A Palestinian driver rammed his bulldozer into a police car, rolling it over until it slammed into a bus at one of Jerusalem's busiest intersections on Thursday before police and a taxi driver shot him dead.

An open Koran, the Muslim holy book, was found in the driver's cabin, Niso Shaham, Jerusalem's deputy police chief, told reporters at the scene. A police spokesman said it was a "terrorist" attack.

Israeli police and Palestinian residents identified the driver as Marei Radaydeh, a West Bank construction worker in his mid-20s who lived with his family in the Arab East Jerusalem neighourhood of Beit Hanina.

No Palestinian militant groups have claimed responsibility for the incident, which came a day after a visit by U.S. Secretary of State Hillary Clinton.

Video from a traffic camera showed the bulldozer lowering its front shovel before striking a parked police car. The bulldozer then rolled the vehicle across the intersection, flipping it over and smashing it into a bus.

Police said two officers inside the car were injured.

Riyad al-Malki, information minister for Palestinian President Mahmoud Abbas's Western-backed government, described the incident as a "traffic accident", and called for an investigation into why the bulldozer driver was shot.

Hamas said the attack was a "natural response" to Israel's demolition of Palestinian homes in East Jerusalem and to the Jewish state's military offensive in the Gaza Strip, which the Islamist movement controls. Hamas and Abbas's secular Fatah faction are rivals.

Radaydeh, whom police spokesman Micky Rosenfeld called a "terrorist", was not carrying any identification papers.

Nir Barkat, Jerusalem's mayor, said he would recommend that authorities take "the harshest measures we can take by law" against those involved in the attack. Two of Radaydeh's brothers were later arrested, family members said.

Israel has previously threatened to demolish the homes of Palestinian attackers.

Police compared Thursday's attack to three similar incidents last year, two with bulldozers and one with a BMW car.

In the 2008 incidents, which police also called "terrorist" attacks, the drivers were identified as Palestinians from Arab East Jerusalem.

One witness, who identified himself as Shai, said the bulldozer driver was shot by both a policeman and a civilian who was later identified by police as a taxi driver.

Amateur video obtained by Reuters captured the sound of four gunshots fired near the bulldozer, which came to a stop at the end of a highway that leads to Jerusalem's main shopping mall. (Additional reporting by Joseph Nasr and Ivan Karakashian, Nidal al-Mughrabi in Gaza, Mohammed Abu Ganeya in Bethlehem, Mohammed Assadi in Ramallah; writing by Adam Entous; editing by Richard Balmforth) (For blogs and links on Israeli politics and other Israeli and Palestinian news, go to http:/blogs.reuters.com/axismundi)

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