Palestinian police opened fire at soldiers disguised as Arabs during an operation, prompting a standoff that ended with the intervention of IDF reinforcement troops who entered the city center and rescued the unit.
Duvdevan elite combatants came under fire from PA security forces as they stopped a taxi in the center of Bethlehem to arrest one of its passengers, a terror suspect wanted for questioning.
Military officials said the Palestinians mistook the elite unite for a group of Palestinian gunmen harassing the taxi.
The unit sought refuge in a local shop and called for help, following an exchange of fire that lasted about 10 minutes.
IDF reinforcement troops positioned at the entrance to Bethlehem entered the city and rescued the five undercover soldiers. Two Palestinians were wounded, while no IDF injuries where reported.
PA Chairman Mahmoud Abbas condemned the incident, demanding Israel cease its military intrusions in Palestinian cities.
The incident comes at troubled times for the Duvdevan unit which suffered another humiliation last week when an officer and two soldiers in its ranks refused to participate in a key anti-terror operation in Jenin, citing their unwillingness to put their lives on the line.
The refusal led to the dismissal of a Duvdevan commander and the relegation of the three soldiers to a logistics brigade.
Ronny Shaked contributed to this report