The Britain-based rights watchdog said "a suicide bomber detonated his explosives near the Mariamite church. According to preliminary reports, four people were killed and several others wounded."
The Observatory also reported shelling in nearby Al-Amin Street, also in old Damascus, without going into further detail.
Elsewhere, regime forces stormed the town of Al-Qariatayn in the central province of Homs, state television said, and "restored peace and security".
The Observatory said troops in the town were detaining people.
North of Homs city, the army intensified its bombardment of rebel-held Rastan and Talbisseh.
The army also renewed shelling the town of Houla, scene of a massacre last year, according to the Local Coordination Committees, a network of activists.
The Observatory also reported the army has retaken parts of the Barzeh district in Damascus from rebels.
The latest violence in a conflict the Observatory says has killed more than 100,000 people comes as relief groups say they are unable to keep pace with the rising misery.
"There is a huge discrepancy between the ability to cope with the Syrian crisis and the escalating speed in which the demands in Syria are growing," said Peter Maurer, the head of the International Committee of the Red Cross (ICRC).
"And this gap still continues to widen as we speak," he said in Geneva, decrying "incredible violence and incredible suffering, and quite extraordinary violations of international humanitarian law by all parties to the conflict in Syria."
On Tuesday, the World Food Programme warned that Syrians caught up in the war are cutting basic foods from their diets to save money, or begging to survive.
Maurer, presenting the ICRC's 2012 annual report, said the Syrian conflict represents the organisation's largest outlay, ahead of Afghanistan, with 101.3 million Swiss francs (82.2 million euros/$107.2 million) dedicated to addressing it this year.
He said he doubted the violence would end soon.
For the time being, "we don't see where a political solution could easily come from, and that's the reason why we would rather calculate for a longer conflict," he said.
On the political front, Turkish Foreign Minister Ahmet Davutoglu met the top UN expert leading a probe into allegations of chemical weapons use in Syria, a ministry official in Ankara said.
Davutoglu held closed-door talks with Swedish expert Ake Sellstrom, who has so far been barred from entering Syria.
As US Secretary of State John Kerry discussed Syria with Jordan's King Abdullah II in Amman, Russia accused Saudi Arabia and other Gulf states of funding "terror".
It was responding to accusations by Saudi Foreign Minister Prince Saud al-Faisal that Russia was responsible for mass killings in Syria because of its military support for the regime.
"A number of capitals, including Riyadh, unfortunately are not ashamed of employing all sorts of methods and contacts, including by financing and arming international terrorists and extremists," a foreign ministry statement said.
"Terrorists" is the term the government in Damascus uses for rebels in Syria.
Refugees from Syria have flooded across borders into neighbouring states in a effort to flee the conflict which has also spilt militarily into other countries.
More than 1.6 million Syrians, including more than 800,000 children, have sought refuge in Lebanon, Jordan and Turkey.
Meanwhile, the UN Security Council on Thursday backed UN peacekeepers in the Golan Heights carrying machine guns, as fallout from the Syria war increases in the ceasefire zone.
The 15-member council passed a resolution to extend the mandate of the force, which monitors a three-decade-old ceasefire between Syria and Israel, but which called on Syrian government and opposition fighters to stay out of the zone.
UN officials and diplomats said the peacekeepers, who traditionally only carry very light arms, will get machine guns, extra body armour and more armoured vehicles.
The Golan has been tense since the beginning of the conflict in Syria more than two years ago. So far there have only been minor flare-ups as Syrian small arms fire or mortar rounds hit the Israeli side, prompting an occasional Israeli response.