The man had recently been released from prison after serving a sentence for stabbing several people at a gay pride parade in 2005, police spokeswoman Luba Samri said.
Samri said the attacker, Yishai Schlissel, was arrested.
Eli Bin of Israel's emergency service said six young people were wounded in the attack, two of them seriously.
Witnesses told Channel 2 TV that an Ultra-Orthodox man rushed the marchers and stabbed multiple people before Israeli police jumped on him and arrested him.
"People ran in every direction to take cover. Where I was standing there were three people on the ground bleeding. There was immense panic and shock," he said.
Today's attacker carried out a similar attack that wounded several people at a gay pride parade in Jerusalem a decade ago. Media reported he hid in a nearby supermarket and jumped out to attack the march when it passed.
Jerusalem police spokesman Asi Ahroni said there was a "massive presence" of police securing the parade but "unfortunately the man managed to pull out a knife and attack."
Jerusalem's annual parade is smaller and more restrained than the annual gay pride march in Tel Aviv, which was attended by some 100,000 revelers last month.
Tel Aviv has emerged as one of the world's most gay-friendly travel destinations recently, in sharp contrast to most of the rest of the Middle East, where gays are persecuted or even killed.
Gays serve openly in Israel's military and parliament, and many popular artists and entertainers are gay, but gays still face hostility among religious Jews.
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