Israel is close to completing its Jenin operation, a senior aide to Prime Minister Benjamin Netanyahu said on Tuesday after the fiercest fighting in the flashpoint West Bank town in more than two decades killed 10 Palestinians and forced thousands to flee.

Launched early on Monday, the raid involving hundreds of commandos and air strikes prompted the internationally backed Palestinian administration to say it was suspending contacts with Israel and stirred U.S. and U.N. humanitarian concerns.

Codenaming the operation in Jenin's tenement-like refugee camp "Home and Garden", Israel says the objective is to uproot Iranian-backed Palestinian factions behind a surge in gun and bomb attacks as well as preliminary efforts to make rockets.

A Palestinian wounded during the house-to-house clashes died overnight and another body was found in the morning, bringing the death toll to 10, with around 100 wounded, 20 of them critically, the Palestinian health ministry said. The Islamic Jihad faction claimed four of the dead as its fighters. Hamas, another Islamist faction, claimed a fifth. It was not immediately clear if the other five fatalities - males aged 17 to 23 - were combatants or civilians.

The operation "is close to completing the achievement of the goals set," Israeli National Security Adviser Tzachi Hanebi told Kan radio after a relative lull in the clashes overnight.

The Israeli military said it had confirmation of nine Palestinians killed by its forces. All were combatants, it said, adding that 120 suspected gunmen were detained for questioning.

Troops would be deployed to specific target areas in the camp to conduct further searches on Tuesday, chief military spokesperson Rear Admiral Daniel Hagari said. "If there's friction with terrorists - we'll fight them too," he tweeted.

Offices and businesses across the occupied West Bank were expected to close on Tuesday in response to calls for a general strike to protest the operation, which the Palestinian Authority of President Mahmoud Abbas has described as a "war crime".

The Palestinian Red Crescent said it had evacuated 500 families, or around 3,000 people, from the camp, where some 14,000 people live in less than half a square kilometre and which has been one of the focal points of a wave of violence that has swept the West Bank for more than a year.

Aid groups called on Israel to guarantee humanitarian access. The United States said on Monday it respected Israel's right to defend itself but said civilian casualties should be avoided. The United Nations said all military operations should respect international law.

Hundreds of fighters from Islamic Jihad, Hamas and Fatah live in the camp which has been fortified with a range of obstacles and watching posts to counter regular army raids.

"The brutal (Israeli) aggression will not break the will of valiant Jenin," said a statement by Islamic Jihad, adding that that fighters had detonated several bombs near the troops.

Asked about its casualties, the military said one soldier had been lightly wounded by a grenade.

On Monday, Israeli bulldozers ploughed through streets in the camp to destroy improvised explosive devices, cutting water and electricity supplies, though Israeli officials said they would work to restore services.

On Tuesday, the military said border police had found an underground shaft used to store explosives in the refugee camp and had dismantled two observation posts.