In a joint statement, the Israel Defence Forces (IDF) and the domestic intelligence service, Shin Bet, said they had attacked a command centre in the Jenin refugee camp that was used by a local militant group.
Images from inside Jenin showed armed and masked Palestinian fighters on the streets as gun battles and explosions continued into Monday morning.
At a checkpoint on the outskirts of the city, the sound of increasingly heavy gun battles and aircraft overhead could be heard as the day wore on.
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The camp on the outskirts of the northern West Bank city was set up in the 1950s and the ghetto-like area, home to about 11,000 people, has long been viewed as a hotbed of what Palestinians consider armed resistance and Israelis see as terrorism.
Hundreds of armed fighters from militant groups including Hamas, Islamic Jihad and Fatah are based there, and the semi-autonomous Palestinian Authority has next to no presence.
The Jenin Brigades, a unit made up of armed men from different factions, has been blamed for several terror attacks against Israeli citizens as the security situation across Israel and the West Bank has deteriorated over the past 18 months.