HIGHLIGHTS: Aqsa Brigades Threatens Relatives of Israeli leaders||Israel Backtracks on Deportation of Kin & Agrees to Release Tax Revenue Withheld from PA||Israel Reportedly Promises to Withdraw from Two Palestinian Cities||A Bomb Explodes Near an Occupation Army Patrol in Nablus|| STORY: Two Resistance men were killed when occupation army soldiers attacked them as they were about to attack the Kosh Katiff settlement complex in Gaza. Occupation army sources said that they were monitoring the movements of the two Palestinians since dawn Monday and attacked them at the right time adding that two of their soldiers were slightly injured in the attack.

Aqsa Brigades said the two men attacked a settlement within the complex and that they engaged the occupation army unit guarding the settlement adding that the Israeli navy took part in the attack against the two men.

For their part, Islamic Jihad Resistance group said that only one Palestinian was killed in the attack and gave his name as Imad Mussa Abu Eishah, 21 adding that the other managed to escape.

AQSA BRIGADES THREATENS RELATIVES OF ISRAELI LEADERS

The Aksa Brigades Resistance organization Sunday threatened to target family members of Israel's leaders. The announcement was made in reaction to the government's tentative decision to expel relatives of Palestinian bombers from the West Bank to the Gaza Strip.

"We are warning the Israeli government lest you expel the families of the martyrs. If you do this we will respond by harming the families of Israeli leaders," it was declared in statement released to foreign news services by the organization.

Sixteen West Bank Palestinians facing deportation by Israel to the Gaza Strip withdrew their legal action against the move after receiving an appeal guarantee, Israeli security sources said on Sunday.

Israel did not issue a formal explanation for the decision, which could cool the controversy about its plans to deport relatives of militants, its most recent countermeasure against a 21-month-old Palestinian uprising for independence in the occupied territories.

The 16 petitioners were among 22 male relatives of suspected Palestinian militants rounded up by the Israeli occupation army near the West Bank city of Nablus on Friday, after two Palestinian bombers struck in Tel Aviv and Resistance men ambushed a bus near an internationally illegal Jewish settlement, killing 12 people in all.

Israel -- which also razed two family homes in the swoop -- said the 22 men would be deported to the fenced-in Gaza Strip as a deterrent to future attacks, especially Resistance bombings.

The rationale has drawn criticism all around, including from Israel's guardian ally, the United States, and the United Nations. The Palestinians denounced the demolitions and planned deportations as a "war crime."

INTERNAL DISAGREEMENT IN ISRAEL

There has also been domestic dissent over the tactics, last used by Israel during the first Palestinian uprising from 1987 to 1993.

Israeli occupation army sources said earlier that Attorney-General Elyakim Rubinstein and the army had agreed that deportation from the West Bank to the Gaza Strip would be an option only for family members with a proven link to plotting for attacks.

The Israeli Foreign Ministry's legal adviser said in statement that deporting the families of Palestinian bombers would not be consistent with international and humanitarian law.

Palestinians have been locked in their homes, unable to work and short of supplies since Israeli troops stormed into West Bank cities after bomb attacks in June killed 26 people.

POSITIVE SPIRIT PREVAILS DURING TALKS

In a separate glimmer of goodwill, Israel agreed to transfer tax revenue withheld from the Palestinians on condition its distribution was monitored, Israeli political sources said.

Peres's spokeswoman Yaffa Ben-Ari said a "positive spirit" prevailed at his talks on Saturday night with senior Palestinian officials. "Peres presented steps Israel is ready to take to alleviate the situation (in West Bank cities) but said continued terror is hindering action to do so," she said.

Israeli political sources said Israel had agreed to pay the Palestinians 10 percent of the 420.8 million U.S. dollars in tax revenue it owes, on condition an oversight team with U.S. involvement ensures the money does not go toward funding attacks.

The Palestinians agreed, and this week Israeli Finance Minister Director-General Ohad Marani and Palestinian Finance Minister Salam Fayyad are to discuss the deal further, the sources said.

ISRAEL REPORTEDLY PROMISES TO WITHDRAW FROM TWO PALESTINIAN CITIES

A senior Palestinian sources said Sunday that Israel has promised to withdraw from the West Bank cities of Bethlehem and Hebron on a trial basis on condition that there are no terror attacks against Israelis.

The source, a senior member of the Palestinian negotiating team, told an Israeli news agency that Israel had promised to withdraw from the two cities before the next meeting of the two sides.

BOMB EXPLODES NEAR OCCUPATION ARMY PATROL IN NABLUS

An explosive device was detonated near an occupation army patrol in the West Bank city of Nablus on Sunday evening. An Israeli news agency reported that there were no injuries and no damage was caused.

A bomb placed on railway tracks near the central Israeli town of Rehovot exploded as a double-decker passenger train passed by, wounding its driver, police and rescue workers said.

PHOTO CAPTION

Israeli police and train workers inspect the damage to a passenger train hit by a bomb in the central city of Yavneh, Israel Sunday, July 21, 2002. (AP Photo/Eitan Hess-Ashkenazi)