Israeli forces surrounded a two-story building in the West Bank city of Ramallah and threatened to demolish the building unless Ibrahim Hamed surrendered.
Hamed, the West Bank commander of the Hamas military wing Izzedine al Qassam, has been on Israel's most wanted list since 1998, eluding capture on numerous occasions.
Israeli Defense Forces spokeswoman Noa Meir says Hamed planned some of Israel's worst suicide bomb attacks, including one at Jerusalem's Hebrew University, and others targeted at some of Jerusalem's most popular sidewalk cafés.
"He has been wanted since 1998 and has been behind some of the worst bombings that we have witnessed in Israel," he said. "We are talking about over 60 Israelis who were murdered, not by the man himself, but he was the mastermind behind these attacks."
Hamas and most other Palestinian groups agreed to suspend such attacks against Israel last year, although at least one group, Islamic Jihad has continued to carry out suicide bombings, including one last month in Tel Aviv that killed more than 10 people.
Meanwhile, in an interview with the Israeli newspaper Ha'aretz, Palestinian Prime Minister Ismail Haniyeh, a leading Hamas politician, says if Israel withdraws to its 1967 borders Hamas will implement what he calls a long-term cease-fire, lasting many years.
Hamas has so far refused to recognize Israel, disarm or recognize existing agreements between the Palestinian Authority and Israel, leading to a cutoff of donor assistance and a financial crisis in the Palestinian territories.
Haniyeh also held an emergency meeting with leading Fatah officials, loyal to Palestinian President Mahmoud Abbas, to try to bring and end to growing violence between Hamas and Fatah gunmen in Gaza. Haniyeh says the violence will not be allowed to spiral into a civil war as many fear could happen.
Haniyeh says all sides will work together to get gunmen off the streets of Gaza and to ease tensions.
Palestinian President Mahmoud Abbas says he will convene a so-called "meeting of national emergency" later this week, bringing together all Palestinian factions to address the deteriorating security situation in the Palestinian territories, as well as the dire economic situation many Palestinians face.