HIGHLIGHTS: Further Plans Still Need to Be Discussed: Palestinian Officials||Hamas Describes Security Plan as a Recipe for Civil War||Israeli Assassination Squads Kill Aqsa Brigades Chief in Tulkarm, in the West Bank & a Hamas Member in Khan Yunis, in Gaza||Occupation forces Arrest Aqsa Brigades Chief in Bethlehem & Demolish His Rented House||Rumsfeld Says Palestinian Authority Involved in, What He Calls, International Terrorism||Saudi Arabia Hits Back in Anger over "Enemy" Allegations from U.S.||Sharon to Discuss Emergency Plan in Case of "Massive Attacks"||Israel Arrests Arab Israeli Students|| STORY: The Palestinian leadership agrees with Israel's security plan for an Israeli withdrawal from re-occupied land in return for a crackdown on Resistance activists, but still has some issues to thrash out, a Palestinian minister told AFP. (Read photo caption)

"The leadership decided to agree with this plan as it is the first step of a comprehensive withdrawal from the re-occupied territories and a return to the borders of 28 September 2000," when the Palestinian uprising broke out, public works minister Azzem al-Ahmed said.

Nabil Shaath, minister for international cooperation, said: "Yes, we agreed in principle" with the plan presented late Monday at a meeting between Israeli Israeli Defence Minister Binyamin Ben Eliezer and Palestinian interior minister Abdel Razaq al-Yahya.

Ahmed said a Palestinian team would meet with an Israeli delegation to discuss the plan further.

One Palestinian official said that information minister Yasser Abed Rabbo, security advisor Mohammed Dahlan and other officials were set to meet Israeli representatives later in the day.

Ben Eliezer's plan, dubbed "Gaza First," would allow for Israelli forces to withdraw to positions they held before the start of the intifada almost two years ago if Palestinian security services took control and prevented anti-Israeli attacks.

The project would be given its first try-out in the Gaza Strip.

HAMAS SAYS SECURITY PLAN IS A RECIPE FOR CIVIL WAR

Hamas and the smaller group Islamic Jihad lashed out at the Israeli proposal, saying it put the Palestinian security forces on collision course with the militants and contained the seeds of civil war

ISRAELI ASSASSINS KILL AQSA BRIGADES CHIEF IN TULKARM & A HAMAS MEMBER IN KHAN YUNIS

As the Palestinian cabinet sat down to discuss the security cooperation plan, an Israeli assassination squad killed a local head of the Al-Aqsa Martyrs Brigades, an armed offshoot of Arafat's Fatah faction, and one of his lieutenants in a raid in the northern West Bank town of Tukarem.

The squad backed by an attack helicopter swooped on the northern West Bank town of Tulkarem, on the boundary with Israel, and killed the town's Al- Aqsa Martyrs Brigades chief, Ziad Daas, and one of his lieutenants, witnesses said.

Tulkarem is one of the seven West Bank towns and cities under Israeli control since June 19, when the army poured into the West Bank to stamp out militant groups after a previous wave of suicide bombings and shootings.

Meanwhile, an Israeli sniper assassin killed a member of the Resistance group Hamas in the southern Gaza Strip city of Khan Yunis, Palestinian security sources said.

The man was identified as Hossam Hamdan, 24. His father, Ahmed Nimer, is a top political leader for Hamas in the Gaza Strip.

OCCUPATION ARMY DEMOLISHES RENTED HOUSE OF RESISTANCE LEADER

Israeli occupation troops on Wednesday also demolished a one-story home rented by a top Resistance activist accused of having sent several Palestinian bombers to Israel.

The demolition came just a day after Israel's Supreme Court upheld the army's right to raze homes of so-called terror suspects without advance warning.

Thirty-five Palestinian families, whose homes are slated for demolition under a new Israeli policy, had sought 48 hours warning to enable them to take legal action.

In Wednesday's demolition, armored bulldozers moved at daybreak to raze the house where Yehiyeh Daamseh, a leader of the Al Aqsa Martyrs' Brigade militia in Bethlehem, had been living with his son. Daamseh and his son were in the house and were arrested by soldiers.

Daamseh, an explosives expert, is accused of having sent several bombers to Israel, including one who blew himself up in a Jerusalem neighborhood in March, killing 11 Israelis.

Daas was the successor of Rayed al-Karmi, who was killed by Israeli forces in January after the Jewish state accused him of killing Israelis

The owner of the house, Omar Farhat, was not in the area at the time and could not immediately be reached for comment.

RUMSFELD ON SO-CALLED PALESTINIAN TERRORISM

US Defense Secretary Donald Rumsfeld cast doubt on the viability of Arafat's administration as a peace partner should talks resume.

"There's no question that the Palestinian Authority has been involved with terrorist activities. So that makes it a difficult interlocutor," he said.

"Israel has been trying to interact with and ... have, for whatever reason," not found "an effective interlocutor," he said.

Despite the increasingly frosty US attitude to the Palestinian Authority -- including its insistence that Arafat be dumped as its leader -- a Palestinian delegation, including Yahya, was to head Washington later Wednesday for talks.
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SAUDI ARABIA HITS BACK IN ANGER OVER "ENEMYH" ALLEGATIONS FROM U.S.

Saudi officials and newspapers responded in kind over an explosive briefing to a Pentagon advisory board that portrayed the kingdom as an enemy of the United States and active on all levels of terrorism.

Although the Washington administration was quick to distance itself from the briefing, the press blasted a "growing current" in the United States aimed at damaging the 60-year-old US-Saudi relations.

And Saudi Foreign Minister Prince Saud al-Faisal described the briefing as "pure fiction", stressing that relations were "excellent in all fields."

SHARON TO DISCUSS EMERGENCY PLAN IN CASE OF "MASSIVE ATTACKS"

Israeli Prime Minister Ariel Sharon was expected to examine with security officials various scenarios of possible large-scale Palestinian attacks.

The discussions Wednesday, which are to include Foreign Minister Shimon Peres and Finance Minister Sylvan Shalom, will look into measures needed in the event of "massive attacks" and review the possible forms of retaliation.

Among the scenarios considered are the bombing of major skyscrapers in the Tel Aviv area, as fear is growing in Israel that Palestinian militants could up the ante and inflict a World Trade Centre-style strike on Israel.

ISRAEL ARRESTS ARAB ISRAELI STUDENTS

Two Arab Israeli nursing students have been arrested on suspicion they failed to tell authorities about an impending Resistance bomb attack on a bus they were traveling on.

The two women, both 19, got off the bus Sunday after the Palestinian assailant told one of them that "something horrible" was going to happen, said Ilan Harush, a local police chief in northern Israel.

Twenty minutes later, the bomber set off the explosives he was carrying, killing himself and nine passengers.

Based on witness accounts, police began a search for the women, who live in northern Israel. They were arrested earlier this week and charges will be filed against them Thursday.

PHOTO CAPTION

Residents of the the biblical town of Bethlehem survey the debris of the house of Al Aqsa Martyr's Brigade militia leader Yehiyeh Daamseh Wednesday Aug. 7, 2002. Israel says Daamseh is an expert bombmaker and dispatched suicide bombers to Israel. His home was bulldozed by Israeli troops in the revived practice of destroying homes of suspected terrorists and bombers. (AP Photo/Carina Appe