The Israeli occupation army confirmed the arrest of 14 suspected resistance fighters in the operation that ended before dawn on Wednesday.
Palestinians said the arrested included a senior member of Hamas, an injured man and a woman.
Another man was lightly injured by Israeli fire.
Residents of the West Bank's largest city heard explosions and exchanges of fire throughout the night.
Aljazeera reported that several buildings were demolished by Israeli forces.
Several residents said they were unable to return to their homes in two neighbourhoods because Israeli troops imposed a curfew.
Intense gunfire was heard in the Old City and downtown, Aljazeera's correspondent in the West Bank reported.
Israel frequently carries out
raids in the West Bank
He said occupation forces were deployed throughout the city.
The troops demolished one four-story house and another burst into flames after it was hit by a tank shell, witnesses said.
Israeli agent killed
An Israeli army spokesman said it had targeted the "terror infrastructure" in the city.
The Israeli army carries out arrest operations in West Bank towns almost nightly.
A member of the Israeli internal security services was killed in an attack by Hamas in the Gaza Strip on Tuesday, Israeli military sources said on Wednesday.
Israeli public radio said it was the first agent from the Shin Beth to be killed since the beginning of the Palestinian intifada, or uprising, in September 2000.