A Palestinian intelligence officer died and at least 40 other Palestinians, mostly civilians, were wounded in the pre-dawn raid on the political and commercial city in the West Bank. The Jewish state's army said a soldier died in the attack.
"I appeal to...Arafat and call on him to end terror activities completely," Israel's right-wing Prime Minister Ariel Sharon later told a special session of parliament that convened in solidarity with the United States after Tuesday's suicide attacks in New York and Washington.
"If Arafat declares a ceasefire, I will declare an end to the initiated operations of the army," he said.
"If there will be complete quiet for 48 consecutive hours, the foreign minister (Shimon Peres) will meet Arafat in order to advance the process of the ceasefire, to bring about seven days of calm," before implementing a truce-to-talks plan.
Sharon said he was making the appeal to the Palestinian leader "in the light of the U.S. commitment to uproot all the terrorist organisations' network and in order to prevent continued bloodshed in our region."
Arafat responded by saying Palestinians were already committed to achieving a ceasefire, but did not say whether he would call on militants to lay down their arms.
"We are ready for the political dialogue in any time, even any time they want," Arafat told reporters in the Gaza Strip.
"But unfortunately, as they (Israelis) say these words, they continue with their aerial raids on the Gaza Strip, the invasion of (the West Bank city of) Jenin."
Sharon vetoed tentative truce talks between Peres and Arafat set for Sunday in Gaza following the air attacks in the United States in which some 5,000 people are believed to have died.
Political analysts say it will be difficult for U.S. President George W. Bush to forge an alliance with Arab and Muslim states against so-called terrorism as long as Israeli-Palestinian violence continues.
Previous efforts to arrange a ceasefire have failed to end almost a year of violence during Palestinian protests against Israeli military occupation of Arab land. More than 700 people have died, the vast majority of them Palestinians, and many thousands have been injured.
The latest Israeli military incursion followed the shooting of an Israeli motorist in northern Jerusalem on Saturday.
In Ramallah, hospital officials said Palestinian military intelligence officer Adel Jaber died after tanks entered the city from up to four different locations and fired several shells before withdrawing after about four hours.
Palestinian police returned fire as helicopter gunships swooped low over Ramallah, firing missiles towards at least one Palestinian security checkpoint.
Israeli soldiers shot and wounded five Palestinians during demonsrations at the Qalandia checkpoint near Ramallah on Sunday, Palestinian medical officials said.
A Palestinian affiliated with the militant Islamic organisation Hamas and his three sons were arrested by Israeli forces during the Ramallah raid, Palestinian sources said.
"During the operation there were exchanges of fire between soldiers and Palestinians. Following the exchange of fire troops struck Palestinian positions with ground forces and helicopter gunships, as well as carrying out arrests," the army said.
At least five residential buildings as well as infrastructure belonging to Force 17 were hit. Three of the wounded were reported in critical condition and most of those hurt were said to be civilians.
Sharon told parliament that talks now with Arafat, without a cessation of violence, would give the Palestinian leader "legitimacy as a good guy."
That could pave the way for Arafat to become a partner in the U.S. anti-terror alliance, effectively giving him "a chance to continue with the terror without us being able to act against him," Sharon said.
He added that the U.S. drive against "terrorism must include a fight against "all terror organisations including those of Arafat."
He named them as the security formation Force 17, members of Arafat's own mainstream Fatah faction and "their partners in the terror coalition": Islamic Jihad, Hamas, Lebanon's Hizbollah and the Popular Front for the Liberation of Palestine.
"If we are invited to join the (U.S.-led) coalition, we will join," Sharon said.
Israel's forces have frequently raided Palestinian-ruled territory since the uprising against Israeli occupation erupted last September.
The pace of the incursions, and their subsequent death toll, appeared to have accelerated over the past week. Israeli troops struck targets in the Gaza Strip and at least four West Bank cities.
Palestinian medical sources said a 19-year-old medic in the town of Beit Sahour was killed by an Israeli tank shell. The army said it had responded to Palestinian gunfire.