The arrests came after a high-speed chase on Tuesday that brought large parts of the country to a standstill days before national elections.
Security officials declared a high alert at midmorning on Tuesday, warning that an attacker had infiltrated the country. Police beefed up forces and erected roadblocks on the two major highways linking Jerusalem and Tel Aviv, snarling traffic for miles.
Police spotted the suspected van near the suburb of Mevasseret Zion and chased the vehicle for several miles as a helicopter followed overhead.
"We were travelling along the highway ... and suddenly we saw a helicopter swoop down and anti-terror forces speed by," Yonatan Danino, a witness, told Israel Radio. "Suddenly we saw a car with security forces surrounding it. They even came out of the bushes."
The van was stopped at a roadblock near Latrun, halfway between Jerusalem and Tel Aviv. Police removed the bomb from the car, setting off a panic among nearby motorists.
"Police were shouting into megaphones, 'live bomb, live bomb,' and people were running in every direction"
"People started to run away from the cars," Danino said. "Police were shouting into megaphones, 'Live bomb, live bomb,' and people were running in every direction."
Shmuel Ben-Ruby, a Jerusalem police spokesman, said the assailants were carrying 5kg of explosives and intended to plant a bomb in central Israel. He said 10 people were arrested.
Defence Minister Shaul Mofaz said: "In the past few days we know about an increase in alerts, and today one attack was thwarted. I want to congratulate the defence forces on the successful operation and the fact that a terror attack was prevented today."
There was no immediate claim of responsibility. But security forces have been on high alert ahead of the election, especially since Israeli forces assaulted a West Bank jail last week and arrested six wanted Palestinians.
An attack could have had deep repercussions for the election. The centrist Kadima Party, which holds a wide lead in opinion polls, has been accused by its hawkish rivals of being too soft on the Palestinians. Past elections have been affected by violence.
Israel has banned Palestinians from entering the country until after the 28 March election and restricted movement through the Gaza Strip's main cargo crossing.