Israeli forces have captured the leader of Islamic group Hamas' military wing in the West Bank in a raid in Ramallah.
Israeli troops frequently raid Palestinian towns in the West Bank
Israel accuses Ibrahim Hamad, 41, of masterminding a string of suicide bombings, including attacks on cafes and the Hebrew University in Jerusalem.
Hamas took over Palestinian government in March after winning parliamentary elections in January.
It launched some of the biggest attacks against Israel, but it has been holding an informal truce for 15 months.
Mr Hamad was made leader of the Izzedine al-Qassam brigades in the West Bank in December 2003 and Israel says he is behind the deaths of scores of Israeli citizens and five Americans.
Shortly before the arrest, Palestinian Prime Minister Ismail Haniya told an Israeli newspaper that Hamas would observe a long-term ceasefire if Israel withdrew to its pre-1967 borders.
Israeli troops moved into Ramallah with several jeeps and a bulldozer in the early hours of Tuesday.
They surrounded a row of shops where Mr Hamad was hiding - some 200m from the residence of Palestinian leader Mahmoud Abbas, who is away.
Alleged by Israel to have been masterminded by Ibrahim Hamad
March 2002: Moment Cafe, Jerusalem (11 dead)
May 2002: Rishon Letzion poolhall (16 dead)
July 2002: Hebrew University of Jerusalem (seven dead)
Sept 2003: double Jerusalem attack, Hillel cafe and Tzrifin army base (15 dead)
Eyewitnesses quoted by Associated Press say an army bulldozer rammed the iron doors of the shops and troops called over loudspeakers in Arabic for Mr Hamad to come out or they would demolish the building.
When he emerged the troops ordered him to take off his shirt and trousers to make sure he was unarmed, then he walked toward the soldiers in his underwear.
A family member quoted by AP said Mr Hamad has been wanted by Israel since 1998, and has been imprisoned by the Palestinian Authority for his anti-Israeli activities.
He was released by the PA in 2002, during a major Israeli military offensive in the West Bank.
The Israeli army officer who led the capture is quoted by Israeli army radio saying that Hamas would have trouble replacing Mr Hamad.
"What made him special was his creativity in finding very complex ways to attack Israelis," the colonel, who was only identified by his first name, Amir, said.
BBC correspondent Caroline Hawley in Jerusalem says it is not clear why the Israeli army has moved against Hamad now.
Hamas has not carried out any suicide attacks for 15 months and Israeli military operations in the past few months have focused instead on the militant Islamic Jihad group, which has been responsible for most of the recent bombs.
The arrest comes on the day that Israeli Prime Minister Ehud Olmert is holding talks with US President George W Bush in Washington.
Mr Haniya said "peace would prevail" if Israel gave up all the land it captured in the 1967 war.
BBC analyst Roger Hardy says the idea is not new, but Mr Haniya aired it in his first direct interview with the Israeli media, the liberal daily Haaretz.
The remark could be sign that Mr Haniya wants to signal to Israel and the US that Hamas is not inflexible, although the proposal falls far short of their demands that Hamas renounce violence and recognise Israel, our correspondent adds.
In separate remarks to journalists in Gaza, Mr Haniya played down the prospects of a Palestinian civil war, amid continued fighting between Hamas and the former ruling Fatah party.
"The term civil war does not appear in the Palestinian vocabulary," he told journalists after high-level talks between representatives of different factions.
"I assure all the Palestinian people that we are capable of overcoming these events," he said.
On Monday, a Jordanian diplomatic driver was killed in Hamas-Fatah clashes that appear to be dragging the two into an increasingly dangerous power struggle.