Israeli police said they averted a very big catastrophe on Sunday by defusing a pipe-bomb hidden in a backpack and left near a busy Jerusalem intersection.
The discovery of the bomb, which police said could have killed motorists in rush hour traffic on Monday morning, illustrated the fragility of efforts to forge an Israeli-Palestinian peace deal.
It came less than 24 hours after the Israeli army had finally cornered the country's most-wanted terrorist.
But Israeli soldiers suffered heavy casualties, and returned empty-handed, reports CBS News Correspondent David Hawkins.
The nighttime raid left three Israeli soldiers dead and one wounded.
The man they were after, Mahmoud Abu Hanoud, escaped with a wounded shoulder and fled to the Palestinian-controlled town of Nablus, where he surrendered to Palestinian police.
Abu Hanoud is at the top of Israel's most-wanted list.
The leader of the Hamas organization's military wing is the suspected mastermind behind two, 1997 suicide bombings in Jerusalem: one at an open-air market, and another at a crowded pedestrian mall. About two dozen people were killed.
Israel's top general called last night's botched manhunt, "a serious operational mishap." Lieutenant-General Shaul Mofaz said the wounded Israeli soldier... and perhaps some of the dead... were victims of "friendly fire."
The shootout was the bloodiest day for the Israeli army in years, but it wasn't a complete failure. The Israeli's may not have caught Abu Hanoud, but he's no longer at large.
Israeli authorities demolished the house they claim was Abu Hanoud's hideout, and say his detention by Palestinian police will stop him from carrying out terrorist operations intended to completely wreck the peace process.
Despite the stalled talks between Israel and the Palestinian, terror attacks are something neither side wants right now, as it's almost certain to lead to more violence, more young men laid to rest, and more sadness and heartbreak.
Palestinian security forces took Abu Hanoud to a hospital. Later he was transferred to the Nablus prison, Palestinian officials said.
The Palestinians did their best to distance themselves from the operation.
"What the Israelis have done is a mistake, that they committed on their own initiative, and it has nothing to do with the Palestinian Authority," said Col. Jibril Rajoub, the top Palestinian security official in the West Bank. "They paid the price."
This prosperous village Assira al-Shamaliyeh, tucked into a dry riverbed, is designated in interim agreements as a `B' area -- jointly controlled by Israel and the Palestinians -- with ultimate security control in Israel's hands.
Rajoub suggested that, with the sides approaching an agreement that would transfer most `B' areas to a sovereign Palestinian state, it was time for Isaeli forces to move out for good.
"It would have been more appropriate to have given the information to the (Palestinian) police to tackle the issue peacefully and without bloodshed," he said.
Israel was not about to cede its West Bank operations, said Lt. Gen. Shaul Mofaz, the military chief of staff. Still, with three young men dead, all possibly by friendly fire, hard questions needed to be asked.
"It is possible that the lower-level officers made erroneous decisions about the place, the people, the firing. All these issues will be investigated," he said.
The troops entered the village, a Hamas stronghold, on Saturday night looking for Abu Hanoud. He has been a fugitive since the 1997 bombings at the crowded Mahane Yehuda market in Jerusalem and the Ben Yehuda pedestrian mall.
He is also suspected in other attempted attacks, and Israel radio said he was suspected of involvement in the operation of a bomb factory uncovered earlier this month in Nablus by Palestinian police.
Abu Hanoud was walking through the village when an Israeli soldier told him to halt, said his mother, Fatma, who visited him in the hospital. He fired at the soldiers, who were on a nearby rooftop.
He was hit in the shoulder but fled through olive groves to a Palestinian police checkpoint, Fatma Abu Hanoud said.
"Thank God he defeats the Jews," she said, encircled by cheering villagers after she visited her son.
"We are very proud of Mahmoud Abu Hanoud because he acts against the Zionists, the occupiers, to get our rights," said Bashar Yassin, 34, an economist with the Palestinian Authority, standing next to the pile of rubble that had been the house where the armed clash took place.
The owner of the home, Nidal Daglas, who witnesses say also shot at the soldiers, was arrested by Israeli troops and was being questioned.
It was the second fiasco in two weeks for Duvdevan, an elite unit charged with rooting out terrorism in the West Bank. On Aug. 16, Duvdevan troops shot and killed Mahmoud Abdullah, 70, the mayor of another area `B' village during a night exercise. Abdullah had fired at the troops when they entered his property because he believed they were burglars. The army expressed regret at the incident.
Without advance warning of such operations, Rajoub said, Israel could hardly expect Palestinians to live up to the letter of agreements, and extradite Abu Hanoud, as some have demanded.
"This is a thing that will never happen, except over our dead bodies," he said.
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