The last of nine foreign hostages kidnapped in retaliation for Israel's dramatic raid on a Jericho jail were released today, but Palestinian anger that triggered the wave of kidnaps and arson attacks showed little sign of abating.

The three hostages - a correspondent from South Korea and two journalists from France - were driven back to Gaza City from a hideout in the south of the territory where they had been held for almost 24 hours. They all appeared to be in good health.

Anger at yesterday's raid, in which Israeli troops seized Ahmed Saadat, a Palestinian leader wanted in Israel on murder charges, erupted on the streets of Gaza and the volatile West Bank today, where Palestinians called a protest strike and organised demonstrations. Thousands gathered in Ramallah, Nablus and Hebron carrying portraits of Mr Saadat, the leader of the Popular Front for the Liberation of Palestine (PFLP).

Five other prominent Palestinian militant prisoners were also taken into Israeli custody after troops with bulldozers and tanks mounted a ten-hour siege. British and American monitors had left the prison just 20 minutes before, prompting accusations that the US and UK colluded with Israel in the operation.

The suspicion of collusion led to reprisal attacks against Western missions. The offices of the British Council were among several buildings torched. Jack Straw, the Foreign Secretary, denied that the British colluded with the Israeli army, and said that the British observers had been withdrawn because of mounting fears for their safety. It is believed that the prison was effectively in the control of the PFLP.

Mahmoud Abbas, the Palestinian President, cut short a high-profile tour of Europe to return to deal with the crisis. Before he left he angrily blamed Britain and America for going back on the arrangements under which the prisoners had been held at the prison in Jericho since 2002.

The raid has underscored the President's lack of control over day to day events in the Palestinian Authority, and cast fresh doubts on his credibility. Saeb Erakat, the chief Palestinian negotiator, conceded: "This operation has had a destructive impact on the status of the Palestinian Authority."

The mood on the streets of the occupied territories was still angry, but some of the rage was now being directed towards Mr Abbas. "There is a lot of anger here but we must remain united among ourselves," said Wissam Rafidi, a PFLP central committee member, who addressed one of the rallies in Ramallah. "It’s clear that the British and Americans told the Palestinian Authority that they were leaving but the PA didn’t tell us. President Abbas must explain what happened and why it happened."

Israel's action was condemned overseas. Jordan’s King Abdullah II described it as an unfortunate escalation which threatened security in the region. Russia expressed its "profound concern".

In Israel, however, the capture of Mr Saadat - wanted over the murder of the Israeli tourism minister Rehavam Zeevi in 2001 - was greeted as a coup for justice.

The timing was impeccable. Ehud Olmert, the acting Prime Minister who will lead the Kadima Party into a general election in two weeks, enjoyed a slight boost in his popularity ratings for ordering the military raid. The populist Maariv newspaper illustrated its front page with a image of Mr Saadat, blindfolded and handcuffed, beneath the headline "Got 'em!"

Israeli officials are now determined to put the charismatic PFLP leader and fellow activists on trial for the assassination of Mr Zeevi. Tzipi Livni, the Justice Minister, brushed aside the concerns about possible legal problems with the prosecutions, telling Army Radio: "I have no doubt that they will stay with us for a long time."

Mr Zeevi, a hardline nationalist who advocated the expulsion of Palestinians from Israeli-controlled territory, was shot dead in the hallway of a Jerusalem hotel in October 2001. The PFLP claimed responsibility.

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