Israeli army spokesmen stressed that the response to the lynching was a "limited attack" which was meant to send a message to the Palestinian leadership to quell a violent uprising against Israeli occupation forces.
The attacks came after an angry Palestinian mob lynched two Israeli soldiers who had been detained at a Palestinian police station in the West Bank town of Ramallah.
Israeli helicopter gunships launched several waves of attacks on the police station itself, as well as on offices of Yasser Arafat's Palestinian Authority (PA) in Ramallah and his headquarters in Gaza.
PA spokesmen accused the Israelis of unleashing an all-out war against the Palestinian people and appealed for international intervention.
Before Thursday's killings, about 100 people - almost all on the Arab side - have died in clashes across the occupied Palestinian territories and in Israel itself.
Israeli army spokesmen stressed that the response to the lynching was a "limited attack" which was meant to send a message to the Palestinian leadership to quell a violent uprising against Israeli occupation forces.
The main military operations against the Palestinians were called to a halt after dusk, according to an adviser of Israeli Prime Minister Ehud Barak. However there have reports of further airstrikes on Nablus and Hebron into the night.
Mr Barak says he will form a government of national emergency in the next few days, which will include the man most Palestinians blame for triggering the crisis, veteran opposition leader Ariel Sharon.
Speaking on the White House lawn in Washington, President Clinton condemned the murder of Israeli soldiers, but urged both sides to observe an immediate cease-fire.
"Now is the time to stop the bloodshed, to restore calm, to return to dialogue and ultimately to the peace process," he said.
Panic
People ran for cover in Ramallah as huge explosions rocked the town and half a dozen Israeli helicopter gunships circled in the skies overhead.
A BBC correspondent in Ramallah, Hilary Andersson, says this is possibly the worst moment in the Middle East peace process since the Oslo peace accords were signed in 1993.
"This does not look like a peace process," she said. "It looks like a scene of war and that's what it is."
Burnt in the street
The Israeli authorities confirmed that at least three of their men had been detained in the Palestinian-controlled area.
It is not clear what the soldiers were doing in Ramallah: Israel called them unarmed reservists who had taken a wrong turn; Palestinians said they were members of an armed undercover unit.
Video footage of the soldiers' bodies being thrown from the first floor of the police station and attacked by the crowd caused outrage after it was shown on TV in Israel.
The incident came only hours after the United Nations said there had been a breakthrough in talks aimed at ending two weeks of bloodshed between the Palestinians and Israelis.
The crisis was sparked by the visit on 28 September of Likud party leader Ariel Sharon to a holy site in Jerusalem whose status has proved the most divisive issue in the stalled peace talks.
Pressure
Mr Barak, already criticised for the kidnapping of three Israeli soldiers by Lebanese Hezbollah guerrillas, had been under heavy pressure to respond to the killings.
There have been reports of tanks and troops being massed near Ramallah and Israelis living in settlements near the town were told to go down into their bomb shelters.
The escalation comes after UN Secretary-General Kofi Annan brokered an agreement to convene a trilateral security committee, involving Israel, the Palestinians and the United States.
Mr Annan returned to Israel from Lebanon, where he had been trying to mediate the release of three Israeli soldiers captured by Hezbollah militants from a disputed strip on the border.
George Tenet, the director of the US Central Intelligence Agency, was reported holding talks with Mr Arafat in an undisclosed location in Gaza shortly before the Israelis attacked.
Israel now says it is not certain the committee will convene.
Numerous foreign ministers and representatives of international organisations have headed to the region to try to broker an end to the crisis.