Israel is threatening to permanently retake control of a hillside Palestinian neighbourhood in central Hebron, where its troops destroyed two buildings overnight before withdrawing.
The Israeli incursion into Abu Sneineh - in response to sniper fire from the area on Jewish settlers below, was condemned by Palestinian leaders.
The sniper fire badly wounded an 11-year-old Israeli boy on Thursday.
The incursion came as Israeli troops briefly entered a Palestinian-held area of Gaza, near the Deir al-Balah refugee camp - in response to mortar fire at settlements there.
The heightened Israeli military action prompted Palestinian hints that a tentatively scheduled meeting in the next few days between the Palestinian Authority President, Mr Yasser Arafat, and the Israeli Foreign Minister, Mr Shimon Peres, might not now take place.
"We see no point, no use in any meeting with any Israeli official," said Mr Ahmed Abdel-Rahman, an aide to Mr Arafat.
"We are left with no . . . choice but to escalate the Intifada until the removal of the occupation and settlers from our land."
Israeli military commanders said the army's action in Hebron was a "limited" operation that had achieved its mission - destroying two homes from which, they said, the snipers were firing.
The incursion lasted several hours, and involved clashes between the Israeli troops and Palestinian policemen in which at least three Palestinians - some sources said as many as 12 - and one Israeli were hurt.
As with a previous Israeli army incursion, into Jenin earlier this month, Palestinian militants claimed that their "resistance" had forced the Israelis out.
Again, as with the Jenin events, Israeli officials ridiculed the notion.
The Israeli army's Deputy Chief of Staff, Mr Moshe Ya'alon, said: "It is possible we may need to stay up there, in order to ensure totally there is no firing from the hills."
But he added: "At the moment we have no intention of doing that."
About 50 Jewish families live in small settlement compounds in central Hebron - in the 20 per cent of the city that was not handed over to Mr Arafat's control in 1997.
This unique division of authority in a single city, and one of profound historical and religious resonance at that, has been a constant source of friction between the two sides.
The Palestinians have consistently urged Israel to remove the settlers - particularly in the wake of the massacre of 29 Palestinians at prayer in the town's Cave of the Patriarchs seven years ago.
The settlers have consistently urged their government to respond more forcefully to the sniper fire, especially after the killing of a 10-month-old baby, Shalhevet Paz, by such fire in March.