The Israeli army said Monday that a Palestinian militant and his two children were killed by a bomb the man was preparing in his yard, not by an Israeli missile as the Palestinians alleged. At the man's home, there were no signs of a missile hit. 

In Jerusalem, Israeli bulldozers demolished two Arab-owned homes with 10 apartments under construction, saying the owners had no building permits. Palestinians say it is virtually impossible to obtain building permits in the traditionally Arab sector, where they say Israel tries to limit Arab population growth. 

Meir Margalit, a dovish member of the Jerusalem city council, said 40 more Arab-owned homes in east Jerusalem were under threat of demolition. Israel has said it is evenhanded in enforcing building codes throughout the city. 

Israeli Foreign Minister Shimon Peres, meanwhile, said he might meet with Palestinian leader Yasser Arafat. "I don't know if it will be soon, but it is certainly visible on the horizon," Peres told Israel army radio. 

Peres has been trying to revive cease-fire talks, but refused comment on reports that he was proposing a gradual truce that would begin in certain regions of the West Bank and Gaza Strip. A truce brokered in June by CIA chief George Tenet collapsed weeks ago, and high-level contacts have been rare. 

On Sunday, six Palestinians were killed, including Samir Abu Zeid, his daughter Inez, 7, and his son Suleiman, 5, who died in an explosion at their home in the Rafah refugee camp in the southern Gaza Strip. 

Abu Zeid was a founder of the Rafah branch of the Popular Resistance Committee, a group of activists from various Palestinian factions involved in confrontations with Israelis. The group said it would avenge Abu Zeid's death. 

The committee said he was killed by two missiles fired from a nearby Israeli army post. 

Israel denied the claim. The army initially said the blast was caused by a Palestinian mortar that fell short of its target, an Israeli army position. 

However, on Monday, an Israeli spokesman, Lt. Col. Olivier Rafowicz, said an examination of the evidence showed that Abu Zeid was handling a bomb that exploded prematurely. 

A number of Palestinian militants have been killed in recent months while preparing explosives, in some cases injuring or killing bystanders. 

An AP reporter who visited the house found no evidence of a missile, a mortar or any other projectile. The home consisted of a number of small cinderblock structures surrounding a yard. There were no signs of impact on a wall or a roof and there was no crater on the ground. 

The explosion appeared to have taken place inside the yard. Buckled and bloodstained sheets of corrugated iron were scattered around the perimeter. Neighbors said Abu Zeid's body was blown apart. 

Palestinian police came to the house Sunday evening and removed all the evidence, neighbors said. Abu Zeid was a leader of a local squad of activists engaged in confrontations with Israeli troops and Jewish settlers, Palestinian and Israeli sources said. 

Another Palestinian was shot dead Sunday night on the outskirts of the West Bank of Nablus in an exchange of fire between Palestinian gunmen and Israeli soldiers, the victim's family said. Salah Zeidan, 33, was not involved in the fight, his mother said. 

Also Sunday, an unarmed Palestinian was shot in the neck by Israeli soldiers as he tried to bypass an Israeli army roadblock outside Nablus, and died shortly afterward, witnesses said. In Rafah, a 13 year-old Palestinian boy was shot dead by Israeli soldiers engaged in an exchange of fire with Palestinian gunmen. 

Palestinians fired mortars at Jewish settlements in the Gaza Strip and threw grenades at an Israeli army position on the Egyptian border. The army accused the Palestinians of starting the firefights and sending teen-agers to throw grenades. 

Israeli police, meanwhile, said they were investigating accusations by a Palestinian shepherd that dozens of his sheep were poisoned by Jewish settlers. The man told police that residents of the Jewish settlement of Itamar near Nablus fired at him after midnight Sunday, while he was guarding his flock, and that he ran away. 

Police spokesman Rafi Yaffe said officers accompanied the shepherd to the scene and found 123 dead sheep. The animals were taken to a veterinary hospital for an examination.