Israeli troops have detained the top commander of the Palestinian presidential guard, Force 17, Palestinian security sources say.
Damra has reportedly been wanted by Israel for six years
General Mahmoud Damra was arrested at an Israeli army roadblock outside the city of Nablus, Force 17 members said.
The Israeli military has declined to comment on the report.
Force 17 was established by the late Palestinian leader Yasser Arafat and is accused by Israel of involvement in militant attacks.
General Damra has been wanted by Israel for six years for his role as a leader of a terror cell responsible for carrying out fatal attacks in Israel, the Haaretz newspaper said.
He was suspected of choosing the locations of the attacks, training militants and supplying them with weapons, it said.
The top commander is said to have gone into hiding after he escaped an Israeli assassination attempt in May 2001.
He was apparently appointed in May.
Meanwhile, at least one person was killed and several passers-by wounded when a car exploded in the Rafah refugee camp in the south of Gaza late on Tuesday.
Residents said the blast caused a huge fire and one witness reported seeing two small explosions follow the main blast.
Reports of General Damra's arrest came after Israel's announcement that Prime Minister Ehud Olmert wanted to meet Palestinian Authority President Mahmoud Abbas once militants released a captured Israeli soldier.
Vice-Prime Minister Shimon Peres, who announced the proposed meeting, said Israel wanted to resume talks with Mr Abbas on the basis of the peace plan known as the roadmap.
Mr Abbas has said an agreement has been reached on swapping the captured Israeli soldier, Gilad Shalit, for Palestinian prisoners.
The capture of the Israeli soldier by Palestinian militants in a cross-border raid in June sparked a major Israeli offensive in the Gaza Strip during which more than 200 Palestinians died.