A nine-year-old boy is among four Palestinians killed during an Israeli raid on Ramallah in the West Bank.
Israel's "security barrier" is a major sticking point
At least 30 suspected Palestinian militants were arrested during the large-scale incursion started at dawn.
The Israeli army said it was investigating Palestinian accounts that the boy was shot in the head by soldiers during a subsequent protest.
The Israeli raid came two days before Palestinian factions meet in Egypt to discuss halting attacks on Israelis.
The BBC's Barbara Plett in Jerusalem says many Palestinians will see the timing as provocative.
The raid comes during a visit by United States envoy William Burns, who on Sunday met senior Israeli and Palestinian officials.
Our correspondent says Israelis never stopped making arrests during the recent period of relative calm. But this seems to be a larger sweep than normal.
It involved more than 60 tanks, jeeps and armoured personnel carriers, according to Palestinian officials.
The target was the Ramallah cell of the Palestinian militant group Hamas - which Israel says is responsible for the deaths of 60 of its citizens in three years of fighting.
Soldiers shot the three armed militants during a fierce gun battle that erupted in the al-Amari refugee camp in Ramallah, the army said.
Burns (r) wants Qurei (l) to meet Sharon face to face
It said explosives had been found at the place where the militants were taking cover.
Ramallah residents took to the streets to protest.
Troops opened fire to disperse the crowd, killing nine-year-old Mazen Hamdan, Palestinian sources said.
The Israelis said 30 people were detained - Palestinians speak of "dozens" of arrests.
A senior Palestinian official said that the cease-fire talks with the militant factions have been moved from Tuesday to Wednesday for technical reasons.
Mr Burns is seeking to bolster the official US-backed peace plan, known as the roadmap, which has all but collapsed because of continuing Israeli-Palestinian violence.
Mr Burns said Washington would continue to work with Israel and the Palestinians to help them fulfil their obligations.
This, he said, included the issue of "unauthorised outposts" - Jewish settlements built in the West Bank and Gaza without Israeli Government approval. The dismantling of these settlements is demanded by the roadmap.
Earlier, Mr Sharon said some outposts were vital to Israel's security.
Mr Burns has also been trying to encourage the Israeli and Palestinian prime ministers to meet face-to-face, but Palestinian PM Ahmed Qurei has said Israel must stop building a barrier in the West Bank first.
Mr Sharon has refused to stop work on the barrier, which he says is vital to stop Palestinian suicide bombers from infiltrating into Israel.
Mr Burns's visit coincides with Monday's launch in Geneva of an alternative Israeli-Palestinian peace plan.
The so-called Geneva Accord, which has been drafted in secret by left-wing Israelis and unofficial Palestinian negotiators, will be signed in the Swiss city.
Israeli officials have denounced the plan as an attempt by Mr Sharon's opponents to undermine the government, while Palestinian leader Yasser Arafat has not given the plan his public support.
The plan calls for a two-state solution, based on an almost complete Israeli withdrawal from the West Bank and Gaza, shared sovereignty over Jerusalem and a renunciation by the Palestinians of any right of Palestinian refugees to re-settle in Israel.
GENEVA ACCORD: MAIN POINTS
Israeli withdrawal from almost all West Bank and Gaza
Shared sovereignty over Jerusalem
Palestinian renunciation of 'right of return'
The BBC's Middle East correspondent, James Reynolds, says that although it has no official status, the accord's drafters are going ahead as if it is all for real.
The Swiss Government has organised a formal ceremony and an audience of Nobel peace prize winners has been invited along to watch.