Israeli forces imposed a curfew and conducted house-to-house searches for wanted militants in a major incursion in the West Bank town of Nablus.
Israeli troops went in before dawn on Sunday
Army vehicles which entered Nablus early on Sunday surrounded several buildings including two main hospitals.
The Israelis say they aim to counter "terrorist threats" in Nablus.
The Palestinian Authority has condemned the incursion, which is one of the biggest Israeli operations the West Bank has seen in recent months.
Nablus governor Kamal al-Sheikh demanded the Israelis lift the hospital blockade, to allow medical staff to carry out their work.
Main routes into the city have been closed, witnesses say. Schools and a university in Nablus have been closed in response to the raid.
There are reports of bulldozers piling up rubble on main roads, making them impassable.
About 100 vehicles including bulldozers went into Nablus early on Sunday.
An Israeli army spokesman said troops used rubber bullets and tear gas against Palestinians throwing rocks and cement blocks.
The army said two of its soldiers were slightly wounded by an explosive charge. At least eight Palestinians were wounded by rubber bullets, hospital sources said.
Soldiers announced over loudspeakers that a curfew would be enforced in the centre of Nablus, which is home to about 30,000 people.
The raid came a day after troops discovered an explosives laboratory in the town, a spokeswoman said.
The Israelis are searching for eight Palestinians said to be from the al-Aqsa Martyrs' Brigade, which is linked to Fatah, the political party of the President Mahmoud Abbas.
"Israeli forces in Nablus are acting against a broad terrorist infrastructure in order to prevent terrorist activity originating from the city," the army said in a statement quoted by Reuters news agency.
It did not say how long the army operation would last.