Gunshots were heard in Hall Park Street, Wolverhampton, just after 9am on Monday.
Around two hours later officers armed with semi-automatic weapons surrounded a house around half a mile away in Colerne Street, Ettingshall, where at least two men were detained and a suspected gunman was arrested.
Nobody was injured, West Midlands Police said.
Two men were photographed being put into handcuffs as officers kept their weapons trained on one of the new-build houses in Colerne Street, part of a newly-built estate off Ward Street, in between the Birmingham Canal Old Main Line and Bilston C of E Primary School.
Five unmarked armoured police cars were at the estate along with patrol cars and the road which was initially cordoned off.
Paramedic Holly Welch has been on night shifts so was asleep when the commotion woke her up at 11.15am.
The 33-year-old said: "I was in bed and I was woken up by hearing shouting outside and there were police cars with armed officers who had one guy handcuffed on the floor. His jacket was ripped.
"I'd not heard any gunshots but I'm part of a neighbourhood watch WhatsApp group and people were saying there were shots in Hall Park Street which is not far from here and police were there.
"There were about four or five police cars and about eight or 10 armed officers. There were about three normal police cars cordoning off the end of the road and they took the guy to the custody cells.
"It was absolutely a shock, nothing like that has happened here before. I've lived here since 2019.
"The guy's dad was put in handcuffs but has been released."
The road was back open by the afternoon but specialist officers remained at the scene searching the area.
Another resident, who asked to remain anonymous, said it was usually a "very quiet street".
"We watched it from our window upstairs and there seemed to be a lot of policemen out pointing their guns at a house," they said.
"They didn't seem to find anything in the house but they took some people away.
"It's the first time it's happened around here and it's a very quiet street.
"I'm surprised but feel safe as the police did such a good job around here."
A West Midlands Police spokesman said: "We were called to reports of shots being fired in Hall Park Street, Wolverhampton at around 9.05am this morning.
"Fortunately no one was injured and an investigation is underway.
"A 21-year-old man was arrested nearby on suspicion of possession of a firearm with intent to endanger life and is currently in custody.
"Our enquiries are on-going and anyone with any information is asked to contact us via Live Chat on our website or call 101. Please quote log number 811 29 March."