Israeli spokesman Dore Gold again demanded a Palestinian crackdown on terrorist groups.
"If it doesn't occur, then there's little reason to be optimistic that the road map will lead anywhere," he said.
The man was probably waiting to attack a nearby bus or bus stop in the village of Sde Trumot, but panicked and detonated his explosives when the store's owner became suspicious and approached him, police said.
Several hours later, Israeli paratroopers and police began dismantling the West Bank settlement outpost of Mitzpeh Yitzhar, the first inhabited Jewish outpost it has targeted in accordance with a new peace plan, military sources said.
About 200 settlers blocked the road with cars and burning tires, according to Army Radio.
Settlers also set fire to underbrush and threw purple paint on armored bulldozers, limiting the visibility of the soldiers trying to make their way to the hilltop.
Yosi Peli, a settler from the nearby Yitzhar settlement, said there had been minor scuffles at the outpost, and that two settlers were injured. Some settlers were dragged away by troops.
"This is our land, our home," Peli said. "Tomorrow we will be here again on this hill or on other hills."
CBS News Correspondent Robert Berger reports it's the first time the army dismantled an inhabited settlement outpost in the West Bank.
Last week, Israel removed 10 uninhabited outposts. Settler leaders sued to prevent inhabited outposts from being dismantled, but the Supreme Court has rejected many of their arguments.
The year-old outpost consisted mainly of tents and had about 10 inhabitants. The hundreds of paratroopers and police who made their way to the hilltop were armed only with the knives they carried to remove the settlers' tents.
Taking down the unauthorized outposts and stopping Palestinian attacks on Israelis are key elements in the U.S.-backed "road map" to Middle East peace, which envisions an end to more than 32 months of violence and the creation of a Palestinian state by 2005.
In Dhaka, Bangladesh, Secretary of State Colin Powell said he plans to travel to Israel and the Palestinian territories on Friday in hope of restoring momentum to peace efforts. He would meet with Israeli officials in Jerusalem and then travel to "another location," probably Jericho, to meet with Palestinian officials.
Powell condemned the latest suicide bombing in Israel, saying "such acts of terrorism are committed by people who don't want to see two sides living side by side in peace."
Palestinian Prime Minister Mahmoud Abbas held meetings Wednesday night with the militant groups Hamas and Islamic Jihad to get them to commit to end all attacks. Abbas planned to continue meetings with militant groups for a fourth day on Thursday.
Early Thursday morning, a bomber carrying a bag filled with explosives entered a grocery store in Sde Trumot near the West Bank, police said.
The attacker had likely entered the store to wait until the bus stop got more crowded or a bus came, police spokesman Yaron Zamir said.
The store owner, Avner Mordechai, 63, realized the man was a bomber and approached him, Zamir said. The attacker then detonated the explosives, killing Mordechai.
"We have no doubt that the store owner paid with his life to save others," Zamir said.
Sde Trumot, a small farming village in the Jordan River valley, is about three miles south of the city of Beit Shean and about the same distance from the northern edge of the West Bank.
The attack occurred just hours after the Palestinian premier's separate meetings with the main Islamic militant groups.
In a two-hour meeting, Hamas leaders left open the possibility it would halt attacks on civilians in Israel, but continued to insist on their right to target Israeli soldiers and settlers in the West Bank. However, serious discussions were underway, Hamas leaders said, reinforcing speculation an accord might be near.
"We are trying to find a solution which is good for all of us," Hamas official Ismail Abu Shanab said.
In their separate meeting, Islamic Jihad leaders also insisted on the right to target Israelis in the West Bank and Gaza, Islamic Jihad leader Abdulla Shami said.
Israel has said it might accept a temporary cease-fire of up to six weeks by the Palestinian militants, but then Abbas must forcefully crack down on the groups.