Addressing the country minutes after he was hurried to safety, Prime Minister Abiy Ahmed said "a few people" had been killed and others injured. He called the blast a "well-orchestrated attack" but one that failed. He did not lay blame but said police were investigating. An Associated Press reporter saw more than a dozen injured people.
The attack was "cheap and unacceptable," the prime minister said, and added: "Love always wins. Killing others is a defeat. To those who tried to divide us, I want to tell you that you have not succeeded."
The explosion in packed Meskel Square in the capital, Addis Ababa, came after weeks of sweeping reforms that had shocked many in Africa's second most populous nation after years of anti-government tensions, states of emergency, thousands of arrests and long internet shutdowns.
The 42-year-old Abiy took office in April and quickly announced the release of tens of thousands of prisoners, the opening of state-owned companies to private investment and the unconditional embrace of a peace deal with rival Eritrea.
Websites were unblocked and opposition figures were invited to dinner. Ethiopians said they could hardly keep up with the pace of change.
Saturday's rally began as a show of exuberance, with supporters wearing clothes displaying Abiy's image and carrying signs saying "One Love, One Ethiopia."
In a cowboy hat and T-shirt, Abiy told the tens of thousands of supporters that change was coming and there was no turning back.
"For the past 100 years hate has done a great deal of damage to us," he said, stressing the need for even more reforms.
After the explosion the state broadcaster quickly cut away from coverage of the rally, which broke up with people singing, chanting and going back to their homes.
"I've never thought this day will come in Ethiopia. I'm very emotional right now," said Mulugeta Sema, a supporter of Abiy who wore a T-shirt with the new leader's image and spoke before the blast. "We should never get back to dictatorship. This is time for change."
The United States is among those in the international community expressing support for the changes in Ethiopia, a key security ally in a turbulent region with neighbors including Somalia and South Sudan.
Not everyone has cheered the reforms. Some Ethiopians near the border with Eritrea have protested the embrace of the peace deal.
And the Tigrayan People's Liberation Front, a party in Ethiopia's ruling coalition that has been the dominant force in government for most of the past 27 years, said the announcement on the peace deal had been made before the ruling coalition's congress met to discuss it: "We see this as a flaw."