The arrests of the 52 Islamic Jihad activists clouded an already troubled meeting between Israeli and Palestinian leaders in Jerusalem on Tuesday.
The detainees include teachers, shopkeepers, workers and students with most of them having no connection to the resistance arm of the group, known as Saraya al-Quds (Jerusalem Bands).
Nearly half of the arrests were carried out on Monday night and Tuesday morning in the Hebron and Bethlehem regions.
The Israeli army described the move as a fresh crackdown in response to the recent deaths of two Israelis, a soldier and a settler, for which Islamic Jihad claimed responsibility.
Israeli Defence Minister Shaul Mofaz said the military changed tack because the Palestinian Authority has been ineffectual.
"When we found out that the Islamic Jihad was carrying out acts of terror and was not adhering to the truce, then there was no choice but to take resolute action," Mofaz said. "That activity will continue everywhere, and at all times."
The resistance group defended attacks on Israeli targets, saying they fell within their "natural right of self defence".
"We can't accept a situation where the Israeli occupation army and para-military Jewish settlers murder and maim our civilians on a daily basis. We have the duty to protect our people," said Abu Muhammad, a spokesman for the group in Hebron.
Muhammad added that the Islamic Jihad would only observe the de facto ceasefire with Israel if the Israeli army did likewise.
Defence Minister Shaul Mofaz
says Israel had to take action
"Islamic Jihad has taken itself absolutely out of the agreement with its attacks, and so, from our view, we are operating fully against them, as we did before," Lieutenant-Colonel Erez Winner, a senior Israeli commander in the West Bank said.
"Anyone we know who is affiliated with this organisation is a legitimate target."
Palestinian official Saeb Erikat said the Palestinian attacks and Israeli arrests endangered the ceasefire, and "have really cast a dark cloud" over the Sharon-Abbas meeting.
"I want to condemn the cycle of violence that preceded the anticipated summit today," said Erikat, a member of the Palestinian delegation at the meeting. "The Israeli arrests this morning will not add anything to sustaining the quiet."
Israel, flying in the face of US calls for a freeze on settlement construction, announced earlier this week plans to build 700 additional settler units in Jewish settlements around Jerusalem.
"Anyone we know who is affiliated with this organisation is a legitimate target"
Lieutenant-Colonel Erez Winner
The purpose of the new expansion is to create a Jewish demographic continuity between the settlement of Ma'ali Adomim and East Jerusalem in order to cut off the city the Palestinians hope will be their future capital from the rest of the West Bank.
Israeli leaders, including Sharon, said repeatedly they would utilise the planned withdrawal from the Gaza Strip to consolidate the Israeli grip on the West Bank.
Israel is already accelerating the construction of a huge wall of cement and steel in the Jerusalem and Ram Allah regions which Palestinians say would reduce many of their population centres to huge open-air detention camps.
Israel says the part-wall-part-fence structure, is vital for preventing Palestinian fighters from infiltrating into Israel.
Khalid Amayreh in the West Bank contributed to this report.