Israeli troops have bulldozed a house in the northern West Bank, killing a member of Palestinian militant group Islamic Jihad inside.
An Israeli bulldozer ended the siege by crushing the suspect
The man was suspected of planning last month's suicide attack on a Tel Aviv nightclub, the Israeli army said.
Correspondents say the killing further tests an informal truce that is already strained by a stalled handover of West Bank towns to Palestinian control.
However, Palestinian head Mahmoud Abbas says the truce may soon be formalised.
He said he hoped a meeting with the militant groups, mediated by Egypt and scheduled for next week, would yield an official ceasefire announcement.
"I expect this meeting in Cairo will conclude all the efforts that have been made by the Egyptian brothers," he said. "God willing we could have a declaration."
At a summit with Mr Abbas in Egypt last month, Israeli Prime Minister Ariel Sharon agreed to a handover of five West Bank towns and to a tentative halt to military operations in Palestinian areas.
He did not specify whether Israel would continue to target Palestinians when it claimed to have prior intelligence of planned attacks.
The two sides have since been arguing over whether Israeli checkpoints on the edge of the town of Jericho should stay in place or be demolished.
'Fuelling the fire'
Mohammed Abu Hazneh, a 28-year-old, a member of Islamic Jihad, died after a brief siege in the village of Nazlat al-Wusta in the West Bank.
Israeli troops killed him by bulldozing his house after he shot an army dog sent in to flush him out, reports say.
Palestinian sources confirmed that a man had died.
Nafez Azzam, an Islamic Jihad leader, told the Associated Press news agency the killing could provoke a response ending recent weeks of relative calm.
He said his group would raise the issue with Mr Abbas.
Saeb Erekat, a negotiator for Mr Abbas, said Israel should have allowed Palestinian security to "do their job in these areas" and warned its "actions are only adding fuel to fire".
Last month's Tel Aviv blast was a major blow to the informal truce agreed by Israeli and Palestinian leaders earlier in February.
The attack was claimed by Islamic Jihad spokesmen in the West Bank and Damascus, although their colleagues in the Gaza Strip had denied the group was involved.
Seven people have already been detained by Israeli and Palestinian forces over the bombing.
Israel claims Syria was behind the attack but Damascus has denied any involvement.
Palestinian leader Mahmoud Abbas has condemned the bombing and promised to help track down those responsible.