The Israeli army has detained a leading member of the Palestinian militant group Islamic Jihad in the West Bank.
Israel says it needs the fence to protect it from Palestinian attacks
Bassam Saadi was captured when a large group of soldiers, supported by two helicopter gunships, swept into a Jenin refugee camp without meeting any resistance.
The arrest came as the Israeli cabinet began meeting to consider plans for building another section of its controversial security barrier, intended to stop Palestinian suicide bombers getting through from the West Bank.
Washington has expressed concerns that the fence-building will isolate Palestinian villages, and prove a barrier to the current Middle East peace process known as the roadmap.
The cabinet talks come a day after a United Nations report condemned the barrier as illegal and tantamount to "an unlawful act of annexation".
Bassam Saadi had become the effective leader of Islamic Jihad in the West Bank, after the detention or killing of other senior members of the group last year.
Islamic Jihad has carried out a large number of attacks that have killed hundreds of Israelis in recent years.
Local witnesses said that Mr Saadi was found hiding under a car outside a mosque, by soldiers with sniffer dogs.
Another 14 Palestinians were taken into Israeli custody overnight, after raids near Nablus, Ramallah and Hebron.
Israeli forces also entered Qalqilya early on Wednesday, and imposed a curfew in the town.
Prime Minister Ariel Sharon wants his cabinet to approve new sections of security fence which would enclose several big Jewish settlements.
He has said the planned security fence will be built around two Jewish settlements - Ariel and Kedumim - reaching deep into the West Bank.
However under the current plan this new section would not yet be joined up to the main fence.
The issue would be discussed with the Americans again in the middle of next year, and only then will a decision be taken on whether to close the gaps and make the final connection.
The US has raised objections to the new section of fence, and is considering withholding loan guarantees to Israel to the value of the cost of any sections of wall the US considers unnecessary.
New Berlin Wall?
The Israeli Government says the barrier is essential in order to protect its citizens from Palestinian suicide bombers and militants.
Palestinians have countered by describing the fence as a "Berlin Wall", which traps some Palestinian towns and villages and cuts off farmers from their own land.
In his report for the UN Commission on Human Rights, John Dugard, a South African law professor, warned that about 210,000 Palestinians living in the area between the wall and Israel would be cut off from social services, schools and places of work.
"This is likely to lead to a new generation of refugees or internally displaced people," he said.
Israel has dismissed Tuesday's UN report as "one-sided, highly politicised and biased".
Israel's ambassador to the UN, Yaakov Levy, said the report "totally disregards the context of continuous violence directed against Israeli civilians".