Anib Abat, 23, was cornered near the Isabela Central Elementary Pilot School. Police said he had a P150,000 reward on his head.
Police said Abat was involved in the kidnapping of 50 schoolchildren and teachers of the Claret School of Tumahubong in Sumisip, Basilan in 2000.
Most of the hostages were rescued, but Claretian priest Fr. Rhoel Gallardo and two teachers were tortured and killed by the gunmen.
Col. Alexander Yapching, chief of the Army’s anti-terror group here, said another Abu Sayyaf suspect, Abraham Jumdam, was also arrested in this port city after weeks of surveillance.
Jumdam was caught in a Muslim enclave. He has been tagged as among those who kidnapped 17 Filipinos and three Americans from the Dos Palmas resort in Palawan in 2001, Yapching said.
One of the American hostages, Guillermo Sobero, was beheaded while the other, Martin Burnham, was shot and killed during a rescue mission that freed his wife, Gracia, last year.
"He (Jumdam) was involved in the Dos Palmas resort kidnapping and other terrorism in Mindanao," Yapching said.
The arrests came amid heightened security in Mindanao after threats that Abu Sayyaf rebels may launch attacks against US troops taking part in counter-terror operations in the South.
Officials said up to 300 US Special Forces troops are to join a 10-month program to train 16 elite Filipino anti-terror units beginning next month.
Last October, a US soldier was among three people killed in a bomb attack by the rebels near the military’s arms depot here.
The Philippine and US government have linked the Abu Sayyaf to international terrorists. — Roel Pareño, AFP