The operation early on Thursday in his former stronghold of Pale in Bosnia-Herzegovina left a priest and his son seriously injured.
"We conducted a focused international operation in Pale to detain Radovan Karadzic. We did not find him," said Dave Sullivan, spokesman for the NATO-led Stabilisation Force (SFOR).
He confirmed that two civilians suffered blast injuries during the operation that started shortly after midnight after an SFOR helicopter landed in the courtyard of an Orthodox church and a priest's house in the centre of Pale.
The US and British troops used "blast devices" while entering the priest's home in order to "avoid the use of lethal weapons", he said.
According to eyewitnesses, two civilian vans and an ice-cream truck full of SFOR soldiers drove into the churchyard.
A hospital source in the northern town of Tuzla, where the two were transferred by SFOR helicopter, confirmed that the Pale priest, Jeremija Starovlah, and his 28-year-old son, Aleksandar, were admitted there with "life-threatening injuries".
"Both of them suffered head injuries and multiple contusions," said Amra Odobasic, a spokesman for the Tuzla hospital.
The priest has undergone surgery and is currently on a life-support machine, while the son is still undergoing surgery.
Karadzic escaped an earlier raid
Eyewitnesses in Pale said that a powerful explosion and automatic weapons fire were heard at the priest's house next to the church shortly after the SFOR helicopter arrived.
Sullivan said that SFOR transferred the operation to the Bosnian Serb police.
Windows of the priest's house and nearby shops and apartments were shattered.
The operation involved 40 SFOR troops including US and British soldiers and special anti-riot units.
The NATO-led troops in Bosnia have recently stepped up efforts to find Karadzic, who tops the list of war crimes suspects along with his war-time commander Ratko Mladic.
"He can run, but he cannot hide forever"
Peacekeepers raided Pale in January in a bid to arrest Karadzic but failed to find the political leader of the Bosnian Serbs during the 1992-95 war, whose alleged crimes include genocide.
SFOR also tried to arrest him in February and March 2002 in the remote south-eastern village of Celebici.
The charges against Karadzic and Mladic relate in particular to the three and a half year long siege of Sarajevo, which killed some 10,000 civilians.
Karadzic is also accused of being one of the prime organisers of the 1995 massacre of more than 7000 Muslim men and boys in the eastern Bosnian town of Srebrenica.
Sullivan said that the latest operation in Pale was part of a "continuous process to arrest Karadzic". "He can run, but he cannot hide forever," he said.