Israeli Prime Minister Ariel Sharon said the forces would withdraw only when the Palestinian Authority had outlawed militant groups and handed over those responsible for the assassination last week of Israel's Tourism Minister, Rehavam Zeevi.
The Palestinian Authority said it has now banned the military wing of the Popular Front for the Liberation of Palestine (PFLP), the group which killed Zeevi.
But Palestinian officials said no-one will be handed over to the Israelis.
Violence
International efforts are now under way to try to bring an end to the violence of the last few days, in which more than 20 Palestinians and one Israeli have been killed.
European Union foreign policy chief Javier Solana is visiting Israel to see if he can revive a ceasefire agreed last month, amid calls for Israel to withdraw from Palestinian areas.
Since Friday, Israeli forces have entered the Palestinian towns of Ramallah, Jenin, Bethlehem, Tulkarm, Qalqilya and Beit Jala.
The BBC's correspondent in Jerusalem, James Reynolds, says the greatest pressure may come not from the international community, but from within the Israeli Government instead.
Members of the Labour Party, part of the ruling coalition, said that unless the military action of the last few days achieves results very soon, they may walk out of the government.
Crackdown
The Palestinian leadership said it was banning the armed wing of the PFLP because it "gave Israel the opportunity to intensify its repression of our people".
Israeli Defence Minister Binyamin Ben Eliezer dismissed the move, saying Mr Arafat had already banned the group and "didn't need to outlaw them again".
The crackdown on the PFLP has angered another militant Islamic group, Hamas, which insists on the right of Palestinians to resist Israel's occupation through armed struggle.
It says that by outlawing military groups, the Palestinian Authority has stabbed its people in the back at a time when national unity is critical.
Arrests
Palestinian officials said they had now arrested 20 PFLP members.
On Sunday, three Palestinian men were hit by Israeli gunfire near Bethlehem and a woman was killed near Jenin.
Israeli troops also moved further into Ramallah and destroyed a three-storey building belonging to Mr Arafat's Force 17 guards, the French news agency AFP reported.
On Saturday, eight Palestinians were killed in clashes with Israeli forces - the largest loss of life in a single day of violence for two months.
Condemnation
Several countries, including the United States, have criticised the Israeli incursions.
In New York, UN Secretary General Kofi Annan urged Israeli Foreign Minister Shimon Peres to "find a way back to the negotiating table".
Palestinian officials said Mr Arafat had spoken to the American Secretary of State, Colin Powell, and urged the US to call on Israel to withdraw.
The heightened tension between Israel and the Palestinians threatens to undermine America's efforts to solidify Arab support for its anti-terror coalition.