By Amos Harel, Avi Issacharoff and Mijal Grinberg, Haaretz Correspondents, and News Agencies
The raid came one day after four Palestinians were killed and at least 20 wounded when Israeli forces pushed into the center of the West Bank city of Ramallah.
Witnesses near Tul Karm said IDF soldiers searched houses in the village of Attil, looking for Abdel-Mo'ti Hassan, an Islamic Jihad militant.
The troops entered the village in nearly 20 armored vehicles but left without capturing Hassan, 26, witnesses said.
The IDF said it was checking the report.
Meanwhile, Palestinians fired two Qassam rockets at the western Negev on Friday, causing no injuries.
One of the rockets damaged the yard of a house in Sderot, and the second hit a kibbutz.
Islamic Jihad took responsibility for the rocket fire, Israel Radio reported.
In the West Bank, security forces arrested two wanted Palestinians before dawn Friday.
Palestinian gunmen in Nablus opened fire on Israeli troops and threw several explosives at them. There were no injuries.
Abbas condemns Ramallah raid
Palestinian Authority Chairman Mahmoud Abbas harshly condemned the Ramallah raid Thursday, saying it "proved that the Israeli calls for peace and security are fake."
Abbas demanded that Israel pay the Palestinian Authority $5 million in compensation for the damage to shops and cars in Ramallah.
The raid came less than two weeks after Prime Minister Ehud Olmert met
Abbas and promised a package of measures to ease restrictions between the two sides.
Four Palestinians were killed and 20 wounded on Thursday when
IDF undercover troops entered the West Bank town of Ramallah on an arrest raid, setting off protests and gunbattles in the center of town.
During a joint press conference with Egyptian President Hosni Mubarak in Sharm el-Sheikh, Olmert apologized for the deaths of civilians, but defended Israel's incursion as an operation aimed at stopping terrorists responsible for the death of Israeli citizens.
The soldiers, who were dressed in civilian garb in an effort to blend in with the locals, entered an office building near Manara Square with the specific objective of locating and detaining Rabia Hamad, a militant belonging to the al-Aqsa Martyrs' Brigade.
Hamad, who the soldiers said was armed with a pistol, identified the men as IDF soldiers and tried to escape.
The IDF exchanged fire with Hamad, injuring him, yet he managed to elude IDF forces.
Military sources reported that Hamad was a senior Fatah official and a central figure in the planning of terrorist bombings. Because of his standing and occupation, his arrest was a top priority.
The undercover soldiers arrested four Palestinian militants in the raid.
The exchange of fire brought dozens of young men out of the buildings, and they began throwing stones and firebombs at the soldiers; a larger IDF force and Border Police moved in to support the commandos.
In the incident, which lasted nearly two hours, heavy exchanges of gunfire
between the Israeli forces and Palestinian gunmen ensued. The commandos and the rest of the IDF force was finally extracted with the help of a bulldozer and armor plated jeeps, as well as helicopter gunships that fired against open areas to cover the retreating force.
A soldier from a select IDF unit sustained light shrapnel wounds in the eye during the raid. He was evacuated to the hospital.
In a written statement on Thursday, Abbas appealed to the international community to rein in Israel.
"The continued aggression will only lead to the destruction of all efforts aimed at realizing peace," Abbas said.
The incursion, with IDF armoured vehicles and bulldozers slamming aside parked cars near Ramallah's main Manara Square, was the biggest such operation in the city since May, when four Palestinians were killed in a raid.
An IDF spokeswoman in Tel Aviv said forces were engaged in "routine arrest activity" when they came under Palestinian fire.
The IDF left the area after more than an hour of confrontations and exchanges of fire.