HIGHLIGHTS: Occupation Troops kill 5-year Old Ayman Fares of Khan Yunis||Security Talks to Resume coming Few Days||Inter-Palestinian Differences Derail Talks on Future of Intifadha, Uprising against Occupation||Fayad Responds to U.S. & Israeli Pressures on Reform|| STORY: Three Palestinians, including a boy and two Resistance activists caught trying to attack a main checkpoint, were killed in the Gaza Strip, after security talks between Israel and the Palestinians on a phased Israeli withdrawal were put off at the last minute.

The Israeli occupation army said one of its units patrolling the Kissoufim Crossing between the central Gaza Strip and Israel had spotted two men trying to use the cover of darkness to crawl under a security barrier with a large bag.

"This unit opened fire in their direction and both of them were killed," it said in a statement, adding that the bag contained a large amount of explosives.

There was no word on the identities of the Palestinians or any claim of responsibility for the failed attack, which came hard on the heels of the death of a Palestinian boy in the nearby town of Khan Yunis.

OCCUPATION TROOPS KILL FIVE-YEAR OLD AYMAN FARES OF KHAN YUNIS

According to Palestinian hospital and security officials, five-year-old Ayman Fares was killed after being shot in the head by Israeli occupation soldiers who opened fire on the area. His father Nidal, 60 and another man aged 40 were hit in the chest and seriously injured, they added.

Khan Yunis is just a few hundred metres (yards) from the heavily guarded internationally illegal Jewish settlement bloc of Gush Katif, and exchanges of fire are common. Houses along the western edge of the town are riddled with bullet and shell holes.

SECURITY TALKS POSTPONED AT LAST MOMENT

Meanwhile, talks on the "Gaza First" plan for a phased Israeli withdrawal from recently reoccupied areas in the Gaza Strip took another step backward as a meeting set for Thursday night was delayed.

An Israeli occupation army source said there would be no meeting Thursday but one would be held in the coming days.
No official reason was given for the cancellation of the talks, despite a Palestinian leadership statement that it "hopes for a positive result."

Shortly before the discussions were set to begin, Israel's Channel 2 private television said the meeting had been put off until next week, citing serious divergences of the two sides' views.

The Palestinian leadership said the talks were to focus on how to reach a staged Israeli withdrawal from the Gaza Strip, where the scheme was slated to start, and then Bethlehem, in the West Bank, which has been re-occupied by the Israelis since June 19 following a spate of Resistance bombings.

In exchange for any withdrawals, the Palestinians are supposed to crack down on Resistance activists in the evacuated areas.

The Palestinians fear that the proposal might become "Gaza Only," with Israel taking credit for pulling back while sealing its grip on the West Bank, and want iron-clad guarantees Israel will also withdraw from areas in the West Bank. After approving the plan in principle, they later rejected it, arguing Israel had set new conditions in the meantime.

PARTIAL WITHDRAWAL REPORTED FROM RAMALLAH & BETHLEHEM

However, Israeli forces did withdraw from a building near Yasser Arafat's battered Ramallah headquarters, and three tanks pulled back, leaving the area free of heavy armour for the first time in almost two months.

The Israelis also left the seven-story building belonging to the Palestinian culture ministry in the afternoon, with another three tanks stationed outside also pulling back.

It was not clear if the Israeli forces, based at the Jewish settlement of Beit El around 500 metres (yards) away, were set to return. The army curfew was lifted at the time.

The sudden pullback from positions held since Israel took the town as part of Operation Determined Path in the West Bank left an occupied house in the al-Amari refugee camp the only fixed Israeli base in Ramallah, Palestinian security officials said.

Two tanks and an armoured vehicle were seen pulling out of al-Amari for the nearby settlement of Psagot, although troops remained in the occupied three-floor building and four tanks were still stationed outside.

INTER-PALESTINIAN DIFFERENCES DERAIL TALKS ON INTIFADHA FUTURE

There has been a marked dropped in violence in the past week, as Palestinian factions held intensive talks to thrash out a common position on the future of the 23-month uprising.

But Palestinian international cooperation minister Nabil Shaath said that the talks with the main Islamic group Hamas had failed after the movement's leaders rejected a document setting out a common position.

He said Hamas objected to secular factions' suggestion to end attacks inside Israel and the creation of a Palestinian state in the West Bank and Gaza Strip rather than on the whole of historic Palestine, which includes Israel.

FAYAD RESPONDS TO U.S. & ISRAELI PRESSUES FOR REFORM

Palestinian finance minister Salam Fayad has responded to US and Israeli pressures for reform by creating a holding company which will contain all the Palestinian Authority's funds and assets, local press reports also said.

White House spokeswoman Claire Buchan welcomed the decision to create the holding company as "positive," noting that US President George W. Bush had called for "increased transparency and accountability

PHOTO CAPTION

The West Bank city of Ramallah is seen through barbed wire set up by the Israeli army to prevent Palestinians from using back roads to move in and out of the town, August 15, 2002. A senior Palestinian Authority official has announced a major finance reform that would help meet U.S. demands for reviving peace talks with Israel. (Oleg Popov/Reuters)
- Aug 15 4:36 PM ET