French authorities have launched a manhunt for the shooter, who fled the scene.
French President Nicolas Sarkozy and his Interior Minister Claude Gueant are said to be en route to Toulouse.
Toulouse school shooting
"I saw two people dead in front of the school, an adult and a child ... Inside, it was a vision of horror, the bodies of two small children," a distraught father whose child attends the school told RTL radio.
"I did not find my son, apparently he fled when he saw what happened. How can they attack something as sacred as a school, attack children only sixty centimeters tall?"
Binyamin Tuati, the head of the French branch of the Bnei Akiva movement, told Ynet that the Jewish community in Paris was worried the attack could be an indicator of a larger trend.
"It's not hysterical and parents haven't pulled their kids out of school, but we are worried that another wave of terror is upon us," he said.
Community was shaken (Photo: AFP)
Dr. David Shapiro, an expert on anti-Semitism in France, said: "It wouldn't be surprising if the background is indeed anti-Semitic.
"The wave that began in October 2000 continues… Attacks on Jews have been taking place for centuries, and it was only a matter of time before the situation got worse."
Meanwhile. French Ambassador to Israel
Christophe Bigot told Ynet that he was "shocked and horrified to learn of this barbaric act in Toulouse. We all want to express our solidarity with the Jewish community in Toulouse. This issues is taken to heart at the gravest levels.
"President Sarkozy and Ministry Gueant are flying to Toulouse and they will meet with the Jewish community leader.
"We of course want to express our empathy to the victims and assure our commitment to the safety of the Jewish community in France. We will find the man behind this barbaric act."
Anti-Semetic crime? (Photo: AP)
German Foreign Minister Guido Westerwelle condemned the "murderous attack," adding that Berlin offers its "compassion and condolences" to the victims and their families.
"Anti-Semitism and violence against Jewish institutions or against people of Jewish faith have no place in Europe and must be fought with conviction," he said.
The Conference of European Rabbis issued a statement saying the shooting was was a "barbaric event," adding that the Jewish community will not be threatened.
The Jewish Federations of North America released a statement as well, expressing outrage at the incident.
“Words cannot describe the shock and outrage – and deep mourning – that result from a terror attack that is specifically directed at children," the group's CEO and President Jerry Silverman said. "We have long known that Jews can be targets of vicious attacks wherever they are in the world. And it is clear, that even today, in 2012, that statement remains true."
Chief Rabbi of Israel Yona Metzger denounced
the attack as well: "This was the brutal slaying of innocent people whose only crime was being Jews," he said.
Prime Minister Benjamin Netanyahu
added that "it is too early to determine what the background of the murderous act was, but it is impossible to reject the possibility that this act was driven by violent and murderous anti-Semitism.
France has Europe's largest Jewish community, estimated at up to 700,000 people.
Yoav Friedman, Sharon Gilad, Moran Azulay contributed to this report