HIGHLIGHTS: Three Opposition Groups Reject Offer But Hamas Weighing Proposal|| Arafat's Concept of Reform on Collision Course with That of Washington & Tel Aviv||Israel Keeps Grip on Nablus as Arafat Plays Host to Western Diplomats Converging on the Region||STORY: Yasser Arafat has offered Cabinet posts to Hamas and other militant groups involved in bombing attacks against Israelis as part of a government reshuffle he plans to announce in coming days, Palestinians said Sunday. While three other radical groups have turned down the Palestinian leader's offer, saying they don't want to belong to a government that's willing to negotiate with Israel, Hamas is still weighing the proposal, the group said.

It would mark the first time in his eight years as chairman of the Palestinian Authority that Arafat formally brought Hamas into government - a move likely to be strongly opposed by Israel and the United States, which both regard Hamas as a terrorist group.

In Israel, a Hamas-Arafat alliance would be interpreted as an indication that the Palestinians are determined to continue the violent conflict.

From Arafat's perspective, having radical groups inside the government could make them easier to control. It was not clear whether Arafat was making compliance with his call for an end to bomber attacks a condition of Hamas entering the government.

HAMAS TO ANNOUNCE DECISION BY WEEK END

"We are still consulting with our colleagues inside and outside the homeland and our final response will be declared before the end of this week," Hamas spokesman Ismail Hania said of Arafat's proposal.

Of the more than 60 bomber attacks by Palestinians in the current Mideast conflict, Hamas' military wing has carried out more than any other group, including the deadliest attacks. The group has rejected Arafat's call to halt them.

TWO CONFLICTING CONCEPTS OF REFORM

After 20 months of Mideast fighting that has left Palestinian institutions and their economy in shambles, Arafat has come under strong pressure to restructure the Palestinian government. But his definition of reform is likely to differ sharply from what his critics, including the United States and Israel, hope to see.

"The question is whether the Palestinians are taking this seriously," said Danny Seaman, an Israeli government spokesman. Referring to an alliance with Hamas, Seaman said, "If this is the direction that Arafat takes, he shouldn't be surprised at the attitude that Israel takes in response."

In negotiations with leading Palestinian factions over the past few weeks, Arafat has been looking at reducing his current 32-member Cabinet to 18 or 19 posts, and bringing in a number of new faces, aides say. The Cabinet has to date had limited power, generally falling in line with decisions by Arafat.

It was not clear how many or which posts Hamas would receive.

"President Arafat is conducting serious and intensive consultations with Palestinian factions and academics in order to establish a new government," said Ahmed Qureia, the speaker of parliament. "We hope the Palestinian Authority will declare the new government very soon."

During more than three decades as the Palestinian leader, Arafat has always preferred to rule by consensus and is again looking to bring other factions into the government, such as Islamic Jihad and Hamas.

Hamas gains influence among Palestinians not only from its attacks on Israelis, but also from its network of schools, clinics and welfare offices. The group has become the main welfare provider at a time when more than half the 3 million Palestinians live in poverty.

The Islamic Jihad and two secular leftist groups - the Popular Front for the Liberation of Palestine and the Democratic Front for the Liberation of Palestine - have declared their refusal to be in the government following offers by Arafat.

DIPLOMATIC BLITZ

Western diplomats have descended on the region in recent days, and all have stressed the importance of Palestinian reforms. But their definition places a heavy emphasis on revamping the security services to prevent attacks against Israel.
Arafat played host to U.S. Middle East envoy William Burns and European Union foreign policy chief Javier Solana in recent days, and CIA Director George Tenet is expected in the region Monday. He is scheduled to meet Israeli Prime Minister Ariel Sharon Monday evening.

Tenet held talks Sunday with Egyptian President Hosni Mubarak, the first stop on a six-nation Mideast tour to gauge Arab support for changes in the Palestinian Authority.

Diplomats are also pushing to organize an international conference on the Mideast crisis, possibly in the latter part of July, but the ongoing fighting is making it difficult to set an agenda, officials said.

ISRAEL KEEPS GRIP ON NABLUS

Meanwhile, Israeli occupation troops searched house to house for suspected militants for a third day in Nablus, the largest West Bank city. More than 60 suspects have been arrested in the roundup in the city proper and in the city's Balata refugee camp, the latest of Israel's frequent incursions into the West Bank.

On Sunday, occupation troops claimed they had uncovered a large weapons workshop in the house of Mahmoud Titi, a militant leader killed by Israeli tank fire there on May 22, the army said.

The occupation army also said a Palestinian man disguised as a woman was arrested during the sweep in Balata.

Israeli occupation troops have shown a pattern in recent weeks of entering West Bank cities or villages, usually for short periods to make arrests of suspected militants, and then withdrawing. But Nablus was a larger operation with dozens of armored vehicles involved.

Balata refugee camp is a stronghold of the Al Aqsa Martyrs Brigade, a militia that has carried out many deadly attacks, and which is linked to Arafat's Fatah movement.

PHOTO CAPTION

Palestinian leader Yasser Arafat speaks to the media during a meeting of non-allied ministers at his office in the West Bank town of Ramallah, Sunday, June 2, 2002. (AP Photo/Nasser Nasser)