Tensions in Ramallah have been running high since the threat to remove Arafat
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Israeli forces in jeeps and armoured vehicles have entered the West Bank town of Ramallah, where exchanges of fire have been reported.
One Palestinian man is reported to have been killed in the exchange and about a dozen wounded.
Eyewitnesses said the troops had imposed a curfew and surrounded a mosque where the Israelis said wanted militants were holed up.
Correspondents say tensions in the town have been running high since Israel decided in principle last month to remove the Palestinian leader, Yasser Arafat, who has his headquarters in Ramallah.
The Israelis also entered the offices of the Arabic satellite television channel, al-Jazeera, on the outskirts of Ramallah.
The incursion follows a series of intensive Israeli air attacks on the Gaza Strip on Monday that left 10 people dead and injured dozens more.
Mr Arafat called for international help after Monday's raids to stop what he called Israel's "military madness".
In the deadliest of five attacks on Monday, helicopters fired two missiles at a car near a refugee camp in central Gaza killing at least seven people.