The incidents deepened a cycle of bloodshed which has worsened this month, leaving a U.S.-brokered cease-fire dead on the ground. There is also no sign of a new peace initiative on the horizon to end more than 10 months of violence.
The Palestinian died after apparently detonating a bomb when a soldier approached him to inspect his car at a checkpoint near a Jewish settlement in the West Bank's Jordan Valley, Israeli security sources said.
Palestinian security sources said an office of the Palestinian Intelligence Service was struck, as well as a makeshift outpost of Arafat's Force 17 guard unit.
The army said the missile strike was in response to the killing of an Israeli settler by Palestinian gunmen on Tuesday night.
The Al Aqsa Martyrs' Brigade, a group loosely linked to Palestinian leader Yasser Arafat's Fatah movement, issued a statement claiming responsibility for the killing of the settler, Zohar Shurgi, 40, "to take revenge for the killing of our people and our heroes."
Shurgi was driving n a main road across the West Bank, near the city of Nablus, when he was shot dead from a passing car, the army said.
With the violence grinding on, Israel's army said it was reinstating previous rules of engagement with Palestinian militants, and removing some of the more restrictive regulations imposed recently.
"The changes to the regulations for opening fire do not constitute an offensive...and are entirely for the purpose of self-defense," the army said in a statement.
The army did not give details, but the original policy allowed Israeli troops to shoot at Palestinians who appeared to be preparing an attack even if they had not yet opened fire.
Learn more about the history of the Arab-Israeli conflict.
Under the policy that was in effect recently, soldiers were not supposed to shoot unless they came under fire or believed their lives were in danger.
The Palestinians have repeatedly accused the Israelis of using excessive force in the fighting.
Hours before the new violence, President Bush reaffirmed a vow to help end the bloodshed since a Palestinian uprising began against Israeli occupation in the West Bank and Gaza Strip after peace talks stalled.
Wrapping up a round of golf near his Texas ranch on Tuesday, Bush sought to drive home the message that Washington remained involved in Middle East peacemaking, saying he hoped "sanity will prevail."
But on the ground, no one seemed to be listening. More than 500 Palestinians and over 130 Israelis have been killed since the revolt erupted and the death toll is rising almost daily.
Arafat was back in the West Bank city of Ramallah on Wednesday where the Palestinian Legislative Council was meeting. It was expected to discuss creating a national unity government that could include representatives of militant groups such as Hamas and Islamic Jihad.
Israel has been urging Arafat to round up militants on a most-wanted list, but the Palestinian leadership has refused.
About 40 of the Israelis killed were settlers, including a pregnant woman shot dead by gunmen in a roadside attack on Sunday.
The international community regards Israeli settlements in the occupied territories as illegal and they have become a prime target of the uprising. Israel disputes this.
In Amman on Tuesday, an Israeli businessman was found shot dead near his villa, raising fears that Palestinian-Israeli violence could spill over to neighboring countries.
As the tit-for-tat violence surges, the Palestinians have increased calls for the United States to play a bigger role in ending the conflict.
In remarks to reporters, Mr. Bush said he wrote a letter to Egyptian President Hosni Mubarak on Tuesday assuring him of the U.S. commitment to Middle East peace.
"We're very much involved," Mr. Bush said, apparently trying to countr the view that Washington had disengaged from efforts to pull Israel and the Palestinians back from the brink.
"Our administration has been in contact with the Israelis and the Palestinians on a regular basis," he said. "It's important for both sides to break the cycle of violence."
President Bush reiterated that both sides must embrace a peace blueprint drawn up by a panel led by former U.S. Senator George Mitchell that calls for an end to violence, followed by a cooling-off period, confidence-building moves and eventual peace talks.
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