According to witnesses, the raid began before 0300 (0100 GMT) on Sunday, when about 80 jeeps, armoured vehicles and bulldozers poured into Nablus.
Soldiers closed the main entrance to the city, known as a hotbed of militant activity, and the bulldozers erected huge piles of rubble to block off key roads, witnesses added.
It was the first large-scale operation in the West Bank since Israeli forces entered Nablus last on 19 July and surrounded a security compound to arrest suspected militants.
The military broke into transmissions of local television and radio stations, broadcasting orders to people to remain indoors and warning that the clampdown would remain in effect for several days, residents said.
The military said the road closures and curfew were necessary to avoid civilian casualties.
The troops broadcast the names of seven wanted militants from the Al Aqsa Martyrs' Brigades, and warned residents not to give shelter to the fugitives.
Soldiers moved from door to door, entering homes in search of suspects, concentrating on the Old City, a section of rundown buildings and narrow alleyways.
At one point, a small group of nervous soldiers forced a Palestinian youth to lead them into a home. The soldiers then took him, along with several young Palestinian men, into a military vehicle.
Israel's Supreme Court in 2005 had banned the practice of using
|"We entered the city to lower the threat level to Israel and hit terror infrastructure"|
Brigadier General Yair Golan, the Israeli area commander
Palestinian civilians as 'human shields' to search homes for explosives or militants ahead of soldiers.
The army had no immediate comment on Sunday's incident.
Sporadic clashes were reported as soldiers were pelted with stones and cement blocks, and exchanged fire with Palestinian gunmen, the army said.
Two soldiers and four Palestinians were wounded.
Major Avital Leibovich, an army spokeswoman, said the soldiers uncovered another explosive lab and small caches of weapons on Sunday.
Area commander, Brigadier General Yair Golan, said the military entered Nablus because of increased militant activity there. He also said most of the intercepted bombers and explosives came from Nablus.
"We entered the city to lower the threat level to Israel and hit terror infrastructure," he said in a telephone interview.
Peace process 'threatened'
Palestinian officials said that the raid threatened new peace efforts.
Last week, Abbas, the Palestinian president, met Ehud Olmert, the Israeli prime minister and Condoleezza Rice, the US secretary of state, in Jerusalem.
Though little progress was made at the meeting, participants said they discussed the possibility of extending a ceasefire in the Gaza Strip to the West Bank.
"We condemn this military incursion," said Saeb Erekat, a Palestinian lawmaker.
"This will undermine the efforts that are being made to sustain the ceasefire with Israel."
"We condemn this military incursion...this will undermine the efforts that are being made to sustain the ceasefire with Israel"
Saeb Erekat, a Palestinian lawmaker
The raid came at a sensitive time for the moderate Abbas, who is trying to put together a unity government with the radical Hamas group.
Hamas and Abbas's Fatah party reached a power-sharing deal earlier this month in Mecca, Saudi Arabia. Abbas said the deal forced the radical group to moderate its violently anti-Israel ideology and should pave the way for ending crushing international sanctions imposed on the current Hamas-led government.
Israel and Western donor nations have warned that they will not lift the sanctions if the new government does not agree to renounce violence and recognise Israel's right to exist.