Eleven Palestinians and an Israeli soldier were killed in gunbattles near the West Bank towns of Nablus and Jenin.
As evening fell, Israel was in control of several buildings in the Balata refugee camp.
“The camp is effectively under [Israeli military] control,” said Israeli Col. Avi Cohavi, head of the paratrooper brigade carrying out the operation. “It’s completely surrounded and we are in commanding positions.”
Israel said the operation, which included helicopter gunships and tanks was intended to show “there is no refuge for terror.”
According to Israeli officials, Palestinian militants have taken refuge in the camps, where overcrowded blocks and narrow streets provide protection from Israeli tanks.
Nasser Awais, a leader of the Al Aqsa Brigades, which is linked to Palestinian leader Yasser Arafat’s Fatah movement and four recent attacks on Israelis, was hiding in the Balata camp, according to Israeli authorities.
Israeli soldiers went house-to-house looking for Palestinian militiamen, but there were no reports of surrenders. Palestinian officials reported that almost 100 Palestinians have been injured, most of them gunmen.
The U.S. said it was “especially concerned” about the move on refugee camps, but maintained that Israel has a right to defend itself.
“Every effort should be made to avoid harm to civilians,” said State Department spokesman Richard Boucher.
Israel has gone into Palestinian towns during the last 17 months, but Thursday’s incursion marks the first time large numbers of troops have taken up positions in the camps.
The development comes the day after Saudi Arabia presented its peace initiative to the United Nations.
Under the Saudi proposal, Arab countries would recognize the state of Israel in exchange for a withdrawal from territories Israel occupied during the 1967 Mideast war.
However Thursday’s fighting struck a blow to international efforts to arrange a ceasefire.
Ahmed Abdel Rahman, an adviser to Palestinian Authority President Arafat, accused Israel of trying to destroy any movement towards peace.
Rahman did not say whether the militants were in the camps, but said, “We cannot prevent the Palestinians from defending themselves and their land as long as there is occupation.”
Israeli Defense Minister Binyamin Ben-Eliezer said Israel will leave when that goal of stopping the current wave of suicide attacks is accomplished.
“We don’t intend to stay there. We intend to go in and get out,” Ben-Eliezer said.
Since renewed fighting began in September 2000, 1,009 Palestinians have died as have 288 Israelis.