Israeli troops have taken control of a prison in the West Bank town of Jericho, firing on the jail, destroying its walls and killing a guard.
They are trying to seize militant Ahmed Saadat, blamed for the killing of a minister. He is refusing to surrender.
Palestinian leader Mahmoud Abbas has blamed the withdrawal of UK and US prison monitors for the raid.
The raid has sparked a series of clashes, protests and kidnappings of foreigners in the West Bank and Gaza.
A BBC correspondent at the prison says there has been Israeli tank and helicopter fire on the jail.
An Israeli bulldozer could be seen demolishing walls outside the prison where a number of Palestinian guards and prisoners including Mr Saadat, leader of the Popular Front for the Liberation of Palestine, are still holed up.
An Israeli army spokesman said 182 people had been taken from the prison and were being questioned, including 26 wounded.
It is not known how many of the those were prisoners or guards, or how many people are left in the compound. Reports range from between 30 to 80 people.
In the wave of Palestinian unrest that followed the Israeli raid in Jericho:
The director of International Red Cross in Gaza has been kidnapped by gunmen
Two members of the Medecins du Monde charity in Gaza were also seized
A British Council cultural centre in Gaza was set ablaze and an EU compound stormed
Hundreds of people in Gaza and Jericho demonstrated against the Israeli raid
Palestinian militants from the al-Aqsa Martyrs' Brigades in Gaza City warned US and UK nationals to leave the Palestinian territories immediately.
Mr Saadat spoke by telephone from inside the prison to the BBC Arabic Service.
‘The occupation [Israeli forces] are planning a massacre in the Jericho complex. There is shelling from all angles and destroying the prison from all sides,’ he said.
He said two of his colleagues had been killed, although this cannot be confirmed independently.
Under a 2002 deal with Israel, Mr Saadat was guarded by British and US prison monitors, in addition to Palestinian jailers, but the foreigners were withdrawn on Tuesday for what they described as security reasons.
Palestinian Authority President Mahmoud Abbas has condemned the raid and said the US and UK monitors were responsible for the prisoners' safety, calling their withdrawal a grave violation of agreements with the Palestinians.
British Foreign Secretary Jack Straw said the PA had ignored repeated British requests for guarantees regarding the security of the prison guards.
Threat
Israeli troops are reported to have threatened to kill the prisoners if they do not surrender
Reports from the scene said 50 jeeps, three tanks, and an armoured bulldozer pushed into the oasis town in the Jordan valley, as two helicopters hovered overhead.
Mr Saadat was arrested in connection with the killing of right-wing Tourism Minister Rehavam Zeevi by PFLP gunmen in 2001, an attack which itself was to avenge the assassination of Mr Saadat's predecessor by Israel.
Mr Saadat has been in Palestinian custody since early in 2002 - and was moved to Jericho under international supervision in a deal to lift Israel's siege of Yasser Arafat's Muqataa compound in May of that year.
The following month the Palestinian High Court ordered his release, saying there was no evidence to link him to the Zeevi assassination.
Israeli officials said Mr Saadat would be killed if he was freed, and the Palestinian cabinet blocked the release.