Six Palestinians have been killed and about 17 wounded following an Israeli incursion into a Gaza refugee camp, hospital sources say.
At least 17 are reported wounded
There were fierce battles after the Israelis entered Rafah camp, in the biggest operation there in two months.
The operation ended after about eight hours, with the arrest of a militant from Islamic Jihad.
Meanwhile, Palestinian leader Ahmed Qurei has warned Israel "not to impose a solution on us" in the West Bank.
He told the Israeli daily Maariv that any unilateral moves would be a "terrible mistake".
"The fire will burn, the terror will grow."
Israeli Prime Minister Ariel Sharon has frequently warned that he might take unilateral steps if efforts to restart peace talks fail.
Israel has been building a barrier in the West Bank, saying it is needed for security. Palestinians say the move is an attempt to annexe their land.
However, Mr Qurei said he believed that political dialogue was possible.
"We need to renew the trust," he said.
Israeli Foreign Minister Silvan Shalom said he was disappointed by Palestinian demands that the barrier be included on the agenda of any talks.
He held an exploratory meeting with his Palestinian counterpart Nabil Shaath, on the margins of an aid conference in Rome on Wednesday.
"The wall remains a major problem," said Mr Shaath. "We don't insist it has to be solved before the meeting but it has to be on the agenda of the meeting."
Mr Shalom however said that there could be no preconditions for a meeting between the Israeli and Palestinian prime ministers.
In Thursday's dawn operation in the refugee camp, attack helicopters provided back-up to Israeli troops after they were fired on and had hand grenades thrown at them.
Palestinian doctors said that one gunman, a doctor and three civilians had been killed, and that four children were among the wounded.
Officials at Rafah hospital said two of the wounded - including a boy aged 12 - were in a critical condition.
Witnesses said about 20 Israeli armoured vehicles, including tanks, took part in the operation.
Palestinian security sources said that that two houses were surrounded by Israeli troops - one the residence of Islamic Jihad leader Khaled al-Qadi, and the other of Salamah al-Bahabsah from Hamas.
Mr al-Qadi was arrested and the raid ended at about noon (1000GMT).
An Israeli army spokesman said that Mr al-Qadi had been behind a number of attacks against Israeli troops along the border with Israel.
Rafah camp is the frequent scene of battles between Palestinians and Israeli soldiers.
Israeli forces often carry out searches for tunnels used to smuggle weapons from Egypt.
According to the Israeli army, Mr al-Qadi was one of the main operators of the arms-smuggling operation.