The army said it had detained six Palestinians in and around Jenin, including a top official from the radical Palestinian movement Islamic Jihad.
Hundreds of Israeli troops poured into Jenin on Friday, days after two Islamic Jihad suicide bombers from the city blew up a bus in northern Israel, killing 14 Israelis.
As the soldiers and tanks sat tight, US special envoy to the Middle East William Burns left Israel for Yemen on the latest leg of a regional tour to win backing for a new US peace plan to settle the Israeli-Palestinian conflict.
Mr Burns held talks with Israeli and Palestinian leaders - with the notable omission of Palestinian leader Yasser Arafat - during the past three days, but both sides expressed scepticism about the US proposals.
Under curfew
Israeli military sources said troops had taken over about 40 houses and imposed a 24-hour curfew on Jenin since Friday.
An Israeli army commander quoted by the Association Press news agency said soldiers were looking for about 20 Palestinian militants.
"We intend to cover the entire city, imposing a curfew, conducting searches and setting up stakeouts to get the terrorists," the unidentified official told reporters.
The takeover of Jenin and its refugee camp is the army's biggest ground operation for months.
Troops pulled out of Jenin only last week and a curfew was lifted after months of occupation.
Israel's Defence Minister Binyamin Ben-Eliezer said the city and its refugee camp had become a "capital of terror".
"When I speak of men and women suicide bombers, this is where they come from," he said.
Palestinians arrested
Palestinian sources said Israeli troops had taken over more than 50 buildings in Jenin.
Residents said water pipes had been damaged and civilians were unable to leave their homes to get supplies, AP reported.
Palestinian security officials said Israeli soldiers had arrested two men related to one of Monday's suicide bombers.
Five Palestinians, including a 17-year-old youth, were hurt by Israeli gunfire when troops rolled into the city, Palestinian sources said.
As Israel took control of Jenin, troops withdrew from the Palestinian sector of the divided West Bank city of Hebron on Friday, under an agreement negotiated last week between the two sides.