Israeli forces returned to Nablus (search) early Tuesday, exchanging gunfire with Palestinian militants and placing a curfew on the heavily populated ancient quarter of the West Bank city, Palestinian witnesses said.

Israeli forces had pulled out of Nablus on Monday after a two-week operation -- focused around the Balata refugee camp -- in which soldiers arrested dozens of suspected militants. The army says Nablus is a center of militant activity.

Early Tuesday, the troops moved into Nablus' Old City, forcing about 40,000 people to stay in their homes and keeping children out of school, the witnesses said. Troops also forced residents out of their homes to conduct searches, they added.

No casualties were reported from the gunfire.

An army spokesman said the "terror infrastructure" was continuing to operate in Nablus and one suspect was arrested overnight.

The sweep is one of the largest Israeli military raids in the West Bank in recent months, reflecting Israeli policy to go after suspected Palestinian militants in the absence of Palestinian efforts to crack down on violent groups.

In other developments Tuesday, troops killed a Palestinian man near the city of Khan Younis in the Gaza Strip, Palestinian hospital officials said.

The Israeli army said it had fired at a group of suspicious figures who appeared to be planting explosives near the settlement of Morag, wounding one man. The Palestinian hospital sources said the man, 22-year-old Fadel Majar, had been killed by random gunfire.

Also Tuesday, new figures released by Israel's Interior Ministry showed that the population of Jewish settlements grew 16 percent since shortly before Prime Minister Ariel Sharon (search) took office.

An Israeli official, speaking on condition of anonymity, said the increase reflected "natural growth" of existing settlements, not new construction.

Meanwhile, Israel's military chief said the army is considering changing its rules for opening fire after the shooting last week of an Israeli demonstrator during a protest against Israel's West Bank security barrier, Israel Radio reported.

The shooting has set off an uproar in Israel, and the army has opened an investigation into the incident. Authorities interviewed a sniper and two commanders Tuesday as part of the probe.

"This matter is being examined closely, in a profound and thoroughgoing investigation," the chief of staff, Lt. Gen. Moshe Yaalon, told the Knesset Foreign Affairs and Defense Committee.

"It's possible that if we have to change the orders for opening fire, we will do so," Yaalon said.

Defense Minister Shaul Mofaz told Cabinet ministers on Sunday that soldiers did not observe the rules of engagement when they opened fire on the demonstrators.

Continued violence has frozen efforts to implement the "road map," an internationally backed plan to end three years of bloody violence and move toward a Palestinian state in 2005.

The road map plan requires the Palestinians to dismantle groups responsible for three years of attacks against Israelis.

Palestinian Prime Minister Ahmed Qureia (search) has resisted a crackdown on the militants, instead seeking a truce agreement with the militants. Despite Egyptian help, so far he has not succeeded.