In his eulogy before the procession, yeshiva head Rabbi Ya'akov Shapira criticized the government over its willingness to cede territories to the Palestinians.
"The time has come for all of us to understand that an external struggle is raging, and an internal struggle, and everyone believes the hour has come ... for us to have a good leadership, a stronger leadership, a more believing leadership," said Shapiro, weeping.
A rabbi recited psalms line by line, the crowd repeating after him, in memory of the dead students, one of them 26 years old and the rest teenagers between ages 15 and 19.
People packed nearby balconies to observe the ceremony, after which the bodies were to be taken for burial.
The procession left the yeshiva at 10 A.M. and will continue on to the victims' communities for burial.
Nine other people were wounded when athe gunman entered the crowded library and opened fire.
The head of the Zaka emergency service described the scene after the shooting as "like a slaughterhouse."
The fatalities have been identified as Yochai Lipschitz, 18, of Jerusalem; Yonatan Yitzchak Eldar, 16, of Shiloh; Yonadav Chaim Hirschfeld, 19, of Kochav Hashahar; Neriah Cohen, 15, of Jerusalem; Roey Roth, 18, of Elkana; Segev Pniel Avihayil, 15, of Neveh Daniel; Avraham David Moses, 16, of Efrat; and Maharata Trunoch, 26, of Ashdod.
Three of the wounded in the attack at the Mercaz Harav yeshiva in the Kiryat Moshe neighborhood were serious condition, and taken to Hadassah Medical Center in Ein Karem.
The other six were lightly hurt and taken to Sha'arei Tzedek Medical Center.
The yeshiva, which enrolls close to 1,000 students, is widely recognized as the flagship institution of the Religious Zionist movement. The yeshiva was headed for many years by Rabbi Zvi Yehuda Hacohen Kook, the son of the noted rabbinic scholar Avraham Hacohen Kook.
The Jerusalem Police increased its forces in the city in the wake of the attack. On Friday, only Muslim men over the age of 45 with a valid blue identity card will be allowed to enter the Temple Mount for prayers. Female worshippers will not be limited from entering.
The seminary shooting was the first major attack by Palestinian militants in Jerusalem since a suicide bomber killed eight people on February 22, 2004.