Jerusalem (CNSNews.com) - An Israeli soldier and at least one Palestinian militant were killed early Friday in heavy exchanges of gunfire when Israeli forces entered the Askar refugee camp in Nablus to arrest a senior Hamas militant.
In other developments, Washington appeared to be turning up the heat on Israel over its construction of a security fence.
Israeli arrests of wanted militants have continued despite the relative calm of recent weeks, but Friday's confrontation was the first involving what sources called "massive gunfire."
"[The Israeli army] was conducting a small pinpoint operation," military sources said.
When the forces arrived at a three-story house to arrest the militant, "massive gunfire" was directed at the troops, killing St.-Sergeant Roi Oren, 20, from a special commando unit.
"All of a sudden an explosion occurred," indicating that there was an explosives lab or several explosive devices stored in the building, the sources said.
Palestinian sources reported that Israel fired an anti-tank rocket at the building, causing large explosion and the collapse of the third floor.
Hamis Abu Salem, 30, who was in charge of the explosives lab and responsible for guiding and training suicide bombers, was killed.
According to Israel Radio, Fayez Assader was also killed. He was the number two man in the military wing of Hamas and was said to have been planning terror attacks.
Two rifles and a pistol were also discovered at the scene.
The Israeli army's West Bank commander Brig.-Gen. Gadi Eizenkot, was quoted as saying that the army had intelligence information that two senior Hamas members were plotting a terror attack that would be carried out soon inside Israel and therefore the army had attempted to arrest the two.
It's not clear what effect Friday's events will have on the U.S.-backed "road map" process, which is already under a strain.
A Hamas spokesman accused Israel of a "blatant violation" of the current ceasefire between the militant groups and the Palestinian Authority, Israel Radio reported. He was quoted as saying that his organization would discuss the Israeli action but would not be able to stay quiet in the face of such "aggression."
Israeli Prime Minister Ariel Sharon's spokesman Dr. Ra'anan Gissin defended the operation, saying that Israel received intelligence information that the person they were trying to arrest was planning a terror attack.
"Several groups of the Al-Aksa Brigades are not taking orders from the PA," Gissin said.
"In one of the cases, we had focused intelligence [that acts of terror were being planned.] It leaves us with no choice," he said.
Gissin said if the PA would take action against the terror groups, Israel would not have to carry out such operations.
Earlier this week, Israel released 334 Palestinian security prisoners in what it called a goodwill gesture. But Palestinians called the release a trick.
The release of some 6,000 Palestinians prisoners held in Israeli jails is not mentioned in the road map, but Palestinians want all of them freed nevertheless. Israel refuses to release those who are directly involved in terror attacks - roughly half of those incarcerated.
Washington also turned up the heat on Israel over the construction of a security barrier between Israel and the West Bank.
Secretary of State Colin Powell became the first senior administration official to publicly indicate that Washington was considering deducting money spent on the controversial fence/wall from $9 billion in loan guarantees granted to Israel.
"In the case of this fence, Israel felt there was a need to put up such a fence for security purposes, and the president has said that we understand that," Powell said on Thursday.
But if the fence cuts into Palestinian land or makes it difficult to "make the case for a viable Palestinian state," then the U.S. needs to say there is a problem, Powell said.
"With respect to loan guarantees, we have not made any decisions yet, and
certainly have not made any announcements yet," he said. "But we have to be faithful
to the Congressional direction that we had with respect to how to use these loan guarantee monies."
In 1992, the administration of former President George Bush extended $10 billion in loan guarantees to Israel to help it absorb some one million immigrants from the Former Soviet Union. But Congress authorized a formula, whereby the U.S. would deduct (dollar for dollar) money spent on settling Jews in the West Bank and Gaza Strip.
An Israeli source said that Israel would continue to argue its case that the building of the fence doesn't constitute settlement activity but is a legitimate security instrument acting as a buffer against terrorism.
In the past, Israel understood that the money spent on settlement activity would be subtracted from the loan guarantees, said the source, who asked not to be named. But the fence is "creating a major obstacle to terrorism," he said.
"The U.S. has never compromised or jeopardized Israel's security," he said. Cutting the loan guarantees for building the fence would be like penalizing Israel for trying to protect itself, he added.
Powell also said that despite a decrease in terror attacks, there needed to be "a more concerted effort" to break up terror organizations.
"It is not enough just to have a ceasefire, a hudna, as it is called, which could be ended any day. What we really need is a concerted effort on the part of the Palestinian Authority to go after those organizations within the Palestinian community that have the capacity of conducting terrorist acts, organizations such as Hamas, Palestinian Islamic Jihad," he said.
Meanwhile President Bush took a break from his holiday in Texas to sign another six-month waiver allowing the Palestine Liberation Organization to maintain its offices in Washington. A law passed several years ago mandated that the status of the PLO office be downgraded, but the law has been waived every six months since it was passed.
"I hereby determine that it is in the national security interest of the United States to waive that sanction," Bush wrote in a memorandum.