An exchange of fire between Palestinian militants and police in the West Bank city of Nablus is reported to have left at least two people injured.
The cause of the clash between militants and police remains unclear
The incident, involving an armed group loyal to the main Fatah faction, comes amid tensions as Palestinian leader Mahmoud Abbas tries to curb militants.
A BBC correspondent in Jerusalem says the area has been sealed off and medical teams are unable to reach it.
Meanwhile, three Palestinian children have been hurt in an explosion in Gaza.
Hospital officials said a six-month-old baby and two 14-year-old boys were injured when what was probably an old shell went off in Rafah refugee camp.
The shoot-out in Nablus began after several Palestinian gunmen began to fire at the city's main police station, according to witnesses.
Police officers returned fire, with at least two people reported hurt in the exchange.
The gunmen are thought to be members of the al-Awda Brigades, a faction affiliated with Mr Abbas' mainstream Fatah movement.
The cause of the clash remains unclear, the BBC's Jonny Dymond in Jerusalem says.
Mr Abbas has been under pressure to restrain militants and restore law and order in the Palestinian territories.
Following a suicide bombing in the Israeli city of Tel Aviv a week ago, which killed five people, Mr Abbas said he would not tolerate any more such attacks.
The Palestinian leader said on Friday his efforts were being complicated by Israel's delay in pulling back forces from West Bank cities, Reuters reports.
Israel froze its commitment to transfer control of five cities to Palestinian security forces - an agreement reached in talks last month - after the Tel Aviv bomb.
"For the Israeli army to have a presence in all West Bank [cities] and then to ask the Palestinian Authority to be responsible, I think this is difficult," Reuters quotes Mr Abbas as saying.
"Therefore there will be many violations but we will deal with them," he added.
The Nablus clash comes a day after a car bomb exploded near a Jewish shrine in the city where scores of Israelis were praying under armed guard.
The bombing near Joseph's Tomb caused no Israeli casualties but wounded a Palestinian mother and her children.
In an incident earlier this week, in the nearby town of Jenin, a militant opened fire during a visit by Palestinian Interior Minister Nasser Yousef.