Backed by armoured cars, undercover Israeli forces stormed the centre of Ramallah in the West Bank on Thursday, sparking a gun battle in a main marketplace that left at least four Palestinians dead.

Hospital officials said 25 people were wounded during the Israeli operation to arrest wanted militants. Many of the wounded were in critical condition, the officials said.

Ramallah after the Israeli raid Thursday.

There were no reports of Israeli troops being wounded in the exchange.

As plumes of smoke rose above the mostly deserted Manara Square, live footage at the scene showed smashed or overturned cars that had been cleared out of the way by armoured personnel carriers and bulldozers, during what Israeli forces described as  "routine arrest activity."

The clash erupted when Israeli forces entered the open-air vegetable market to try to arrest fugitives with the al-Aqsa Martyrs' Brigades, the Associated Press reported, quoting an anonymous Palestinian security official. The militant group is affiliated with Palestinian President Mahmoud Abbas's Fatah party.

An Israeli army spokeswoman was quoted as saying four Palestinian militants were detained in the raid.

Israel routinely conducts arrest raids in the West Bank, but usually avoids such operations in downtown Ramallah, where the headquarters of the Palestinian Authority is located.

The raid came as Israeli Prime Minister Ehud Olmert was in talks with Egyptian president Hosni Mubarak to find ways to restart Mideast peace talks that have been stalled for more than six years and to free an Israeli soldier held by Hamas-allied militants in Gaza.

Palestinian negotiator Saeb Erekat said Thursday's action violated a promise Olmert made in a rare summit with Abbas last month to work toward peace.

And in a statement read by a spokesman, Abbas said: "This operation proves that Israeli calls for peace and security are false."

Separately, a new round of factional fighting broke out Thursday between the rival Hamas and Fatah groups in the Gaza Strip, leaving two Palestinians dead.

• A member of a Hamas security force was killed when his car came under fire from unidentified assailants in the Jebaliaya refugee camp, a security official said. Hamas accused Fatah of the attack, but Fatah denied involvement.
• Hamas gunmen surrounded the house of a Fatah-linked security commander in Beit Lahiya and exchanged fire with guards, leaving a Fatah member dead and 14 other people wounded, witnesses and security officials said.
• Clashes erupted during the funeral for three Fatah loyalists killed in gun battles with Hamas on Wednesday, wounding five people.

Assailants also targeted three senior Hamas officials in the West Bank, kidnapping one, torching the car of a second and shooting in the air as a third emerged from a mosque, security officials said.

With files from the Associated Press