Israeli police spokesman Micky Rosenfeld however said a general closure would be imposed on the West Bank and Gaza at midnight Thursday ahead of the Jewish holiday of Purim which ends Monday evening.
Under such a closure, Palestinians are banned from entering Israel, except for in a few humanitarian cases.
During the Israeli offensive in Nablus, troops raided the outlying al-Faraa refugee camp where they exchanged fire with three fighters holed up in a camp mosque, the Israeli and Palestinian officials said on Thursday.
The army said the three men opened fire at troops from inside the mosque, and that soldiers returned fire.
"The land of Israel belongs to both Jews and Palestinians - as long as there are people who reject this fact, the conflict will never be solved"
Iskander, Boston, US
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The Israeli forces then regrouped around an apartment building in a newer neighbourhood, surrounding it with jeeps and armoured vehicles, using loudspeakers to demand the surrender of wanted men thought to be hiding in the building.
After civilians poured out, soldiers rushed through the entrance and explosions were heard inside, but it was not immediately clear whether armed men were holed up there.
The Israeli military says that 10 wanted fighters have been arrested since the operation began.
One Palestinian civilian has been killed.
The army, which says it has uncovered three explosives labs in the city this week, says most suicide bombers who have attacked over the past year came from Nablus, a stronghold of Palestine's many armed groups.
Israeli settler wounded
Also on Thursday, suspected Palestinian fighters shot and wounded an Israeli settler driving through the occupied West Bank, medical sources said.
The 55-year-old man from Tzofim settlement near the West Bank town of Qalqilya was "evacuated to hospital with light to moderate wounds", Yerucham Mandola, a Magen David Adom rescue services spokesman, said.
The Israeli army said it was searching for the assailants.