NASA said it was launching an investigation into the disaster and a mission in Texas to recover the astronauts' remains. The break-up spread possibly toxic debris over a wide swath of the state.
It was not clear what caused Saturday's disaster but with the nation jumpy about the countdown to possible war with Iraq, officials discounted terrorism. "At this time we have no indication that the mishap was caused by anything or anyone on the ground," NASA administrator Sean O'Keefe told reporters.
Dramatic television images of the shuttle's descent clearly showed several white trails streaking through blue skies after the shuttle suddenly flared and disintegrated.
Rescue teams scrambled to search for the remains of the crew, which included the first Israeli to fly on the shuttle, former combat pilot Colonel Ilan Ramon. There were warnings that parts of a vast 120 square miles debris field could be toxic because of poisonous rocket propellant.
"The Columbia is lost. There are no survivors," said a grim-faced Bush in a message broadcast on television, which included condolences to the families of the dead astronauts. "Our entire nation grieves with you."
Israelis and Americans watched their televisions in shock as details unfolded.
VIPs lined up to greet the returning astronauts were led away from a grandstand near the shuttle's landing strip by NASA officials after reports of the disaster which occurred just minutes before the scheduled shuttle landing.
It was almost 17 years to the day that the Challenger shuttle exploded on January 28, 1986, killing all seven astronauts on board. The seven astronauts on board Columbia respectfully observed a minute's silence in their memory on Tuesday.
In Washington, the White House flag was at half staff.
A huge security operation had been mounted to protect the take-off of Columbia on January 16 because of terrorism fears and the presence of the Israeli astronaut.
Bush telephoned Israeli Prime Minister Ariel Sharon to lament a "tragic day for the astronauts' families and a tragic day for science."
Take-off and re-entry into Earth's atmosphere are the most dangerous parts of a space mission. In 42 years of U.S. human space flight, there had never been an accident in the descent to Earth or landing. Challenger exploded just after take-off.
"At this point I have to say it's too early to speculate about the exact cause," Bill Readdy, NASA associate administrator for space flight said. "Obviously we're looking at all the data that we have available."
The accident is likely to raise questions over the longevity of the shuttle fleet as Columbia was NASA's oldest shuttle and first flew in 1981. It was 32 months after the Challenger disaster before NASA flew a space shuttle again.
It also raised questions about the resupply of the International Space Station. The shuttle is the main resupply vehicle for the outpost in space.
The rest of the Columbia crew were Americans named as Mission Commander Rick Husband, Pilot William McCool, Payload Commander Michael Anderson, Mission Specialist David Brown, Mission Specialists Laurel Clark and Kalpana Chawla. Ramon was listed as a payroll specialist.
The agency lost contact with the shuttle, which was completing a 16-day mission, at around 6 a.m. PDT while it was 207,000 feet above Earth, and 16 minutes from its scheduled landing at Kennedy Space Centre.
It was travelling at 12,500 mph, 18 times the speed of sound.
On Friday, NASA flight entry director, Leroy Cain, was asked about possible damage to the left wing of the orbiter which might have occurred on lift-off. He said analyses by NASA engineers had shown any damage to be minor, adding: "We're not working any concerns on the orbiter."
There were many reports from local residents of the shuttle apparently breaking apart, with several trails seen as it headed toward Earth, and of an unusually big boom.
NASA headquarters said there had been no reported difficulties from the shuttle before it lost contact.
In Israel, Ramon family friend Modi Keren told Israeli Army Radio he was with Ramon relatives. "We are all sitting and hoping to hear new things. This looks very bad. I very much hope we will hear different, because at this time things look awful."
Ramon's mother was a Holocaust survivor from the Auschwitz concentration camp. In memory of family members who did not survive the Nazi rule of World War Two, Ramon took with him a pencil drawing by a Czech Jewish boy.
There was mounting concern about toxic chemicals from the debris around Texas. NASA mission control in Houston said, "Any debris that is located in the Dallas-Fort Worth vicinity should be avoided and may be hazardous."
Nacogdoches, Texas, received one report of the finding of what appeared to be a door from the orbiter.
"We do have a debris field. It is scattered all throughout Nacogdoches," said Victoria Lafollett, city manager of Nacogdoches about 145 miles northeast of Houston.
"What we've done is activated our emergency operations Centre. Because we have so many pieces throughout the city, we're asking people to stay away from them. We're working closely with NASA and the FBI," Lafollett said.
The shuttle's seven astronauts had closed out science experiments conducted on the mission, which had been deemed a success by scientists and NASA officials. The shuttle did not visit the International Space Station on this trip.
The fate of the International Space Station, a $95 billion (58 billion pound) project nearing the final stages of completion, could hang in the balance after these events.
The three astronauts now living there have food, air and water to last for months but the station's orbit above the planet needs to be boosted by a visiting shuttle periodically.
The next space shuttle mission was to have left on March 1 to carry a new segment to the space station, with astronaut Eileen Collins in command of the shuttle Atlantis.
A Boeing company official said space station work at Kennedy was halted soon after news of the tragedy. Boeing works on space station components at Kennedy Space Centre before they are launched.