HIGHLIGHTS: British Official Meets Palestinian Leaders Despite U.S. Calls for a New Palestinian Leadership||Security Officials Defy Arafat's Decision to Fire them||Fatah Comes Out in Support of Arafat in the Streets of Gaza City While Palestinian Police Clashes with Hamas Protesters in Rafiah|| STORY: Israeli Prime Minister Ariel Sharon and his security cabinet decided on Wednesday to end daylight curfews gradually in seven Palestinian cities reoccupied by the Israeli army.

Israel will continue to keep 700,000 Palestinians confined to their homes at night as the occupation army continues searches for Resistance ringleaders.

Nablus, Tulkarm, Bethlehem, Ramallah, Qalqilya, Jenin and Hebron were reoccupied two weeks ago.

In Jericho, the only West Bank city not invaded in the campaign, a British Foreign Office minister held talks with Palestinian cabinet minister Saeb Erekat, a day after meeting Yasser Arafat despite U.S. calls for his removal from power.

SECURITY OFFICIALS DEFY ARAFAT

Two of the most powerful security officials in the Palestinian administration are defying their leader Yasser Arafat by refusing to relinquish their jobs after being sacked.

Mr. Arafat demoted them as part of a pledge to reform his much criticized administration.

The more senior of the men, the head of preventative security in the West Bank Jibril Rajoub, told the BBC: "I will not step down, and this is my message to Arafat."

Analysts say the defiance by Rajoub may be the start of a power struggle in which internal divisions finally come out into the open.

Mr. Rajoub later denied that he had even been dismissed, saying that reports of his sacking were part of an attempt to discredit him and his unit, which was set up to prevent Palestinian militant attacks against Israel.

Mr. Rajoub and Mr. Arafat have had some well-publicized rows. During one, in February 2002, Mr. Arafat is reported to have drawn his gun.

Other men sacked by Mr. Arafat on Tuesday night were the head of police in Gaza, Ghazi Jabali, and Mahmoud Abu Marzuk, the head of Palestinian civil defence.

Mr. Jabali has also refused to step down - insisting the dismissals were only "rumours". It is not clear how Mr. Abu Marzuk has reacted.

GAZA RALLY IN SUPPORT OF ARAFAT

In the Gaza Strip, Palestinian Resistance men wounded two Israeli soldiers in an early morning attack near the Jewish settlement of Ganei Tal, the occupation army said. The two militants, from the Popular Front for the Liberation of Palestine, were captured by Israeli occupation forces.

One of the wounded occupation soldiers is reported to be in moderate condition.

The other occupationsoldier received light wounds.

Thousands rallied in support of Arafat in Gaza City on Wednesday in one of the biggest demonstrations by his Fatah movement in months. (Read photo caption)

Armed Fatah activists fired in the air, and one said: "Our rifles will protect our right of free choice, and not Bush's dictations. Our choice is Arafat."

HAMAS PROTESTS OUTSIDE PA HQ IN RAFIAH

Meanwhile, hundreds of Hamas activists are protesting outside the Palestinian Authority police headquarters in Rafiah.
The protesters are demanding the release of a young member of Hamas who is suspected of collaborating with Israel.

A battle took place today between Palestinian Authority Police and the Hamas. No further details were immediately available.

PHOTO CAPTION

Gunmen from Palestinian President Yasser Arafat's Fatah movement march with AK 47 assault rifles during a protest in Gaza City to condemn a call by President George W. Bush for new leadership to replace Arafat July 3, 2002. At least 20,000 people took to Gaza streets to voice support for Arafat. (Ahmed Jadallah/Reuter