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The explosion in the densely populated area in the old city triggered panic and tension as the security forces surrounded the area for searches.
Sunday's grenade attack followed killing of a special police officer (SPO) by militants in the uptown Jawahar Nagar locality of the city late Friday evening. The SPO was shot at and killed outside his house. The two attacks came after a lull in the summer capital Srinagar where security forces are already on high alert.