Italy, meanwhile, indicated it would seek the extradition of Abu Abbas, mastermind of the 1985 hijacking of the Achille Lauro cruise ship.
The Palestinian Authority said the arrest violated a 1995 interim agreement between Israel and the Palestinians that was also signed by President Clinton.
According to the deal, no PLO officials were to be arrested for violent acts committed before the 1993 Israel-PLO pact of mutual recognition. Abbas was a member of the PLO's executive committee from 1984 but - left in 1991, according to the State Department.
"At a time when the U.S. is trying to re-engage Palestinians and Israelis through the roadmap, and the basic line is honoring the agreements signed, I hope that the U.S. will honor the agreement that also President Clinton signed," Palestinian Cabinet minister Saeb Erekat told CBS News Correspondent Robert Berger.
Erekat said Abbas has visited Palestinian areas repeatedly since 1996 with Israeli and U.S. acquiescence. He said the Palestinian Authority had contacted the Bush administration to register its complaint.
U.S. authorities allowed an arrest warrant for Abbas in connection with the Achille Lauro case to expire after he was convicted in absentia by an Italian court in 1986. It was unclear whether he would — or could — face charges for that hijacking in U.S. courts.
Still, U.S. officials view Abbas' capture as a major win in the war on terrorism and a vindication of President Bush's charge that Saddam Hussein's regime in Iraq was harboring terrorists.
"This is one of the dividends of this war," said CBS News Analyst Fouad Ajami on The Early Show. "I think it's a great day for the Leon Klinghoffer family. And justice is overdue."
The raids on hideouts of Abbas' Palestine Liberation Front also nabbed other suspects and turned up weapons including rocket-propelled grenades, passports from Yemen and Lebanon and other documents, military officials said.
CBS News National Security Correspondent David Martin reports the United States is looking for other terrorists believed to be still in Iraq.
One is Abdul Rahman Yassin, who helped make the bomb that blew up in the underground garage of the World Trade Center in 1993. He could help the U.S. figure out whether the Iraqi government had any role in the bombing.
Another person of interest believed to be in Baghdad is a former Iraqi diplomat who allegedly met with Mohammed Atta, the leader of the 9/11 hijackers, in Prague in April of 2001. The CIA has never been able to confirm that meeting. Interviewing the diplomat and establishing whether meeting did or didn't take place would go a long way toward determining any links between Iraq and the 2001 terrorist attacks.
U.S. officials would not disclose their plans for Abbas, or discuss the 1995 deal or the lapsing of the arrest warrant.
"I'm certain that the lawyers will take over," said Central Command spokesman Brig. Gen. Vincent Brooks at a briefing Wednesday. Brooks refused to comment on reports that Syria — under pressure for allegedly giving refuge to remnants of Saddam's regime — refused Abbas sanctuary.
American officials have several options for handling Abbas: hold him at a military base, transfer him to another country or bring him to the United States for possible prosecution.
Al Qaeda terrorist leaders captured by the United States have faced a range of fates. Some have been transferred to unspecified third countries — a practice that human rights groups have criticized as a backdoor way for the suspects to be tortured. Others are being held at the U.S. Navy base at Guantanamo Bay, Cuba, being interrogated and awaiting possible prosecution before military tribunals. Still others are being held by U.S. forces at unknown locations outside the United States.
No matter where they take Abbas — his real name is Mohammed Abbas — his American captors are sure to grill him about his ties to other terrorists and Saddam, who sheltered Abbas for years.
Abbas, 55, had eluded arrest since four of his followers hijacked the Achille Lauro as it sailed from Egypt to Israel in October 1985. They demanded that Israel release 50 imprisoned Palestinians. During the seizure an elderly American passenger, Leon Klinghoffer, was shot to death and dumped overboard in his wheelchair.
The hijacking ended after Egypt and representatives of the Palestine Liberation Organization negotiated with the hijackers. Abbas, who helped negotiate the surrender, and the four hijackers were flown out of Egypt on a jet that was intercepted by U.S. Navy fighters and forced to land in Sicily.
Tensions arose as soon as the plane landed. Armed U.S. and Italian soldiers faced off, each side demanding custody of the hijackers. The situation was only resolved after feverish telephone calls between Premier Bettino Craxi and President Reagan.
The Italians took custody of the four and promised to try them, but refused to detain Abbas, saying the evidence compiled by Washington was insufficient and that he held an Iraqi diplomatic passport. Within two days, he slipped out of the country.
Two weeks later, Italian magistrates filed charges against Abbas and issued an arrest warrant, which has remained outstanding. In June 1986 he was tried in absentia, convicted and sentenced to life imprisonment for masterminding the hijacking. The sentence was upheld on appeal.
Italian Justice Minister Roberto Castelli said Wednesday his country will seek Abbas' extradition.
Abbas and his small faction had been relatively quiet in the decade after the Achille Lauro hijacking, and he repeatedly apologized for it.
But in recent years his group has been a conduit for some of the $35 million Saddam's regime paid to families of Palestinian suicide bombers. Israeli officials also have accused the PLF and Abbas of training would-be terrorists at a camp in Iraq for potential attacks, including firing shoulder-launched missiles at civilian airliners.