Elsewhere, Israeli soldiers shot and killed two Hamas attackers in the Gaza Strip on Wednesday as all sides in the conflict awaited a response from Hamas on a truce with Israel.
Acting on an intelligence tip, police went on high alert and set up roadblocks in central Israel, apprehending the Palestinians in the Israeli Arab town of Kafr Kassem near the line with the West Bank, about 12 miles northeast of Tel Aviv.
There was no immediate claim of responsibility from militant groups, although Haaretz reported the men were members of Tanzim, a loosely organized militia linked to Yasser Arafat's Fatah faction of the Palestine Liberation Organization.
The men carried some 22 pounds of explosives. Police detonated the explosives safely, in a blast could be heard for miles around.
Area police commander Yehuda Bachar said that "a large attack which would of had a lot of victims" was averted.
Since violence erupted in September 2000, dozens of Palestinian suicide attackers have crossed the largely unmarked line between Israel and the West Bank.
Hamas, the Islamic militant group, said two of its members fired an anti-tank missile at an Israeli military vehicle in northern Gaza. That set off a firefight in which the two militants were killed. An Israeli soldier was wounded, the military said.
The clash occurred in the area of Beit Hanoun, which Israeli forces have controlled for several weeks in an effort to prevent Palestinians from firing homemade rockets at the Israeli town of Sderot, just beyond the fence surrounding the seaside strip.
Meanwhile, Palestinian Prime Minister Mahmoud Abbas and Egyptian officials continued efforts to persuade Hamas and other violent groups to stop attacks against Israelis, at least temporarily.
There were indications from all sides that agreement might be close, although it appeared that the group might also set terms that Israel would not accept — especially given Israel's fears that a truce would only be used to regroup for more fighting.
A leader of one of the militant groups, speaking on condition of anonymity, said they were demanding Israel release thousands of Palestinian prisoners captured during the 33 months of fighting. He said there was pressure from the prisoners and from street activists on this issue. Israel seemed unlikely to agree.
The U.S.-backed "road map" peace plan, launched on June 4 by President Bush at a Mideast summit, calls for an immediate end to violence and the establishment of a Palestinian state by 2005.
In the first phase, the Palestinian Authority is supposed to dismantle terror groups, while Israel is supposed to freeze Jewish settlement construction in the West Bank and Gaza, dismantle scores of illegal outposts and gradually withdraw troops from autonomous Palestinian territories.
To date, both sides have approached implementation haltingly: Israel has taken down just a handful of outposts, mostly uninhabited ones, while the Palestinians insist on using only persuasion to get the militants to stop attacks on Israelis. Violence has plagued the efforts to arrange a cease-fire.
Although Palestinian Authority officials have in recent days been optimistic about the chances for an agreement from the militants, there have been conflicting reports on the chances of this and on the expected terms of any agreement.
Israeli officials say a temporary cease-fire must be only the first step in a Palestinian crackdown on the militants.
Abbas has promised the militants will eventually be disarmed, but he also says he will not use force against them, fearing a Palestinian civil war. Hamas spokesman Mahmoud Zahar told Israel Radio on Tuesday that Hamas would not lay down its arms until Israeli occupation of territories the Palestinians claim is ended.
Israel's roundup on Tuesday of 160 Palestinians may keep Hamas from signing on to a cease-fire, reports The New York Times.
Israel also faces internal dissent over the dismantling of settlements.
At an emergency meeting Monday, more than 500 members of the "Union of Rabbis for the Land of Israel and the People of Israel" rejected any attempt to dismantle unauthorized Jewish outposts in the West Bank, as required by the "road map" peace plan.
"Changes to the Land of Israel, including changes carried out by the prime minister, are illegal, and of course immoral, because they contravene the Bible," Rabbi Elyakim Levanon of the West Bank and Gaza Strip rabbinical council said at the meeting.
"We are the masters of all of the Land of Israel, and no one will establish another state between the (Mediterranean) Sea and the Jordan (River)," he said.
The declaration prompted charges Tuesday that the rabbis were rekindling the violent political atmosphere that preceded Prime Minister Yitzhak Rabin's assassination in 1995.