Victor Dominello, the Minister for Citizenship and Communities, said he was "deeply disturbed" by reports that a group of teenagers had terrorised students as young as five years old as their school bus travelled between Randwick and Bondi Junction on Wednesday afternoon.

Police allege the offenders got on the bus on Darley Road in Randwick about 3.50pm and, as the bus travelled towards Bondi Junction, they racially taunted and made physical threats to the children.

The children's parents later told police that the offenders, who were possibly drunk at the time, yelled insults such as "kill the Jews" and "free Palestine" during their assault, which one police officer described as an "horrific" incident of bullying and intimidation.

Police said the children were all aged between five and 12 years old and, while they were not physically harmed, they were traumatised by the event. About 30 children from Jewish schools in Sydney's eastern suburbs, including Mount Sinai College and Emanuel School, were on the bus at the time.

The alleged offenders got off the bus on Bronte Road at Bondi Junction. A number of children called their parents, who met them at Bondi Junction and called police.

A NSW Police spokeswoman said five teenagers were arrested at 3.30am on Thursday and were questioned by police about the incident. They were then released into the custody of their parents. No charges have been laid and the police investigation is ongoing.

Mr Dominello said public abuse and intimidation on the grounds of race or religion was "deplorable".

"The people of NSW will never excuse it and those who are alleged to have subjected school children as young as five to this anti-Semitic attack should face the full force of the law," he said.

"We are lucky to live in one of the most harmonious multicultural societies in the world but we must never be complacent. It is incumbent upon all citizens to expose those whose actions are based on racial hatred and who seek to import overseas conflict onto our streets."

The attack is believed to have occurred on a State Transit Authority bus that had been hired out privately for the school run. Police are investigating why the bus stopped to pick up the teenage thugs along Darley Road.

The bus was also believed to have CCTV cameras on board, and police will review that footage, which has not yet been publicly released.

Police said in a statement that officers from the Eastern Suburbs local area command were investigating the incident.

"While the event is not believed to be targeted, police have confirmed appropriate action will be taken against the alleged offenders once found, and any type of racial abuse, especially where young children are involved, will not be tolerated," the statement said.

The teenagers are described as being aged between 15 and 17 years old and "of Caucasian appearance".

Any witnesses or anyone with information about the incident has been urged to contact Crime Stoppers on 1800 333 00 or visit the Crime Stoppers online reporting page.

SMH