Israeli officials and security sources said the night-time assault was intended to "isolate" Arafat and force the surrender of up to 20 wanted militants they accuse of mounting attacks on Israelis and whom they say are holed up inside.

The Tel Aviv blast followed an explosion in northern Israel on Wednesday which killed an Israeli policeman and ended a six-week lull in suicide bombings, raising fears in Israel of a new wave of such attacks and again dimming peace hopes.

Just hours after Thursday's bombing -- which wounded about 50 people and sprayed body parts across a busy street at lunch hour -- Arafat aides said tanks entered his compound in Ramallah and opened fire with heavy machineguns. Arafat was unhurt.

The siege coincided with an incursion by at least six Israeli tanks backed by helicopter gunships into the northern Gaza Strip. Witnesses said Israeli forces exchanged fire with Palestinian gunmen.

Some Israelis have called for the army to remove Arafat and exile him from Palestinian areas but Israeli Prime Minister Ariel Sharon has stopped short of doing so, apparently held back by U.S. and European pressure.

That has not stopped Israeli forces from repeatedly besieging Arafat's headquarters since the start of a two-year-old Palestinian uprising against Israeli occupation.

"Tanks and jeeps are inside the compound and surrounding our office from all sides. There is fierce shooting. Two of our men have been injured but the president is fine," one of Arafat's bodyguards said by telephone from inside the building.

Aides said they feared the troops would enter Arafat's office. The Palestinian Authority called on the international community to "immediately stop this aggression" and urged the U.N. Security Council to dispatch monitors to the area.

Shooting eased but continued to flare sporadically.

Several hours after the siege began, eight Palestinians surrendered to Israeli troops inside the compound, witnesses said. But it was not immediately clear whether any of the unidentified men were on Israel's wanted list.

PALESTINIANS FEAR ARAFAT TO BE TARGETED

Arafat has hardly left Ramallah, the main Palestinian political and commercial center 20 km (12 miles) north of Jerusalem, since December. He has been under siege much of that time.

Palestinian officials said tanks again rumbled into the compound outside Arafat's sandbagged offices which have already been badly damaged in earlier attacks.

But Israeli officials said their forces had only tightened their ring of armor around the compound and responded to shooting from inside. Palestinians inside denied shooting.

"What we are doing right now is using loudspeakers to ask them to come out and surrender," said Gideon Meir, a senior Foreign Ministry official.

Israeli security sources said the compound would remain under siege until the militants surrendered, raising the possibility of a long encirclement.

An Israeli military source said three soldiers were wounded when their tank ran over an explosive device near the village of Beit Hanoun but declined to give further details.

Israel accuses Arafat of doing too little to prevent militants carrying out suicide bombings and other attacks on Israelis in the uprising against Israeli occupation that began in the West Bank and Gaza Strip in September 2000.

At least 1,545 Palestinians and 594 Israelis have been killed since the uprising began.

In separate violence, Israeli soldiers shot dead a 10-year-old Palestinian boy who was stoning an Israeli tank in the West Bank town of al-Bireh, Palestinian doctors and witnesses said. The army had no comment.

TEL AVIV BOMBING

In Tel Aviv, ambulances raced to tree-lined Allenby Street where the bus exploded near cafes and restaurants and the main synagogue in Israel's commercial hub.

"I heard a massive blast. I ran outside where customers were eating lunch. I saw people escaping from the bus, jumping out of the windows covered in blood," said cafe owner Ofer Menachem.

There was no immediate claim of responsibility for the attack, which defied calls by Arafat's Palestinian Authority for an end to attacks against Israeli civilians.

The Palestinian Authority condemned the bombing, saying it gives the Israeli government a "pretext to kill and suppress."

The pavement was scattered with pools of blood and passengers' belongings. Ambulance crews ferried bleeding victims, some with their clothes blown off their bodies, to hospitals. Some were badly burned.

A woman who said she had been standing next to the bomber before disembarking said he wore a buttoned-up jacket, had black hair and a mustache and "had a very strange look on his face."

Israel blamed the bombing on the Palestinian Authority, whose position has been undermined by the refusal of Islamic militant groups to heed calls to end suicide attacks.

The Hamas and Islamic Jihad movements hailed the bombings and said they reflected the Palestinians' resilience to fight occupation despite army blockades across Palestinian areas.

President Bush said at the White House: "We strongly condemn terror...All parties must do everything they can to reject and stop violence."

(China Daily September 20, 2002)