Israeli troops seized parts of this Palestinian town and fortified positions with sandbags Tuesday as Israel said it was settling in for an indefinite stay -- a first in 11 months of fighting.

The U.S. government urged Israel to withdraw and the Palestinians to stop shooting at Israeli residential neighborhoods.

Barely 10 miles away, tens of thousands of Palestinians crying for revenge flooded the streets for the funeral of a senior PLO official killed in an Israeli missile attack a day earlier. Mustafa Zibri, widely known as Abu Ali Mustafa, was involved in seven bomb attacks in the past six months, Israel said.

Despite the Israeli operation to stop Palestinian gunfire from Beit Jalla at the nearby Jewish neighborhood of Gilo, sporadic gunfire continued. A machine gun bullet hit an Israel TV truck, the first time Palestinians have aimed heavy weapons at the Jewish neighborhood.

Also, three mortar shells fired from Beit Jalla exploded in the neighborhood, causing some damage but no casualties

In other fighting Tuesday, a member of the Palestinian security forces was killed in a gunbattle with Israeli troops near the West Bank town of Dura.

Meanwhile, in Gaza, Israeli tanks entered Palestinian territory near the city of Dir al-Balah early Wednesday, according to Palestinian security officials. Requesting anonymity, they said dozens of gunmen opened fire on the tanks.

Residents said the bulldozers leveled farmland and destroyed greenhouses and a building. The Israeli military confirmed that an incursion took place but gave no details.

In Rafah, near the Gaza-Egypt border, an 18-year-old Palestinian was shot in the head by Israeli gunfire after nightfall and died in the hospital, Palestinian medical staff said. Witnesses said the youth was in a group near one of 14 houses torn down by Israeli forces Monday night and was hit by a bullet fired from a nearby Israeli army post. The Israeli military said soldiers opened fire on an armed man planting an explosive device.

Israeli forces also destroyed a police post near the Gaza city of Rafah, Palestinian security officials said.

But the deserted streets of Beit Jalla and the seething West Bank city of Ramallah, where the Palestinians held their rally, were the focal points of an escalating conflict marked by increasingly tough Israeli military responses to Palestinian attacks.

In Washington, State Department spokesman Richard Boucher called on Israel to pull its forces out of Beit Jalla.

"The Israelis need to understand that incursions like this will not solve the security problems. They only make the situation worse," he said at a briefing. But, he added, "the Palestinians need to stop the shootings and attacks against Israelis in Gilo and elsewhere."

The latest Israeli actions have pushed the Mideast crisis into uncharted territory, raising the possibility of urban combat.

But in Beit Jalla, Israeli forces were hunkering down in armored vehicles and atop Palestinian apartments, while Palestinian security forces were lurking only a block or two away on Virgin Mary Street.

The Israelis also took over a Lutheran Church compound that includes an orphanage with 45 children, ages 6 to 16. The children, who like most of Beit Jalla were placed under curfew, took cover from gunfire in a basement. Troops set up a machine gun position on the roof of an adjacent five-story church hostel under construction, witnesses said.

"We demand that the army immediately withdraw from our church premises," said Munib Younan, the Lutheran bishop of Jerusalem.

The army, which wanted the church hostel because of its strategic location and panoramic view, pledged to ensure the safety of the children.

"Beit Jalla has become a sniper's nest, and our forces entered in order to clean it up in order to stop the fire," said Israeli government spokesman Avi Pazner. "They will stay there as long as is needed to get the security back."

Palestinian leader Yasser Arafat charged that Israel is attacking sites holy "not only to Palestinians but to Christians all over the world."

Justice Minister Meir Sheetrit said Israel was not planning to reoccupy Beit Jalla, but would do so if there was no other way to stop Palestinian attacks. Israel withdrew from Beit Jalla and most other Palestinian communities in the West Bank in 1995, ending 28 years of military rule.

For months, Palestinian gunmen have fired at night from Beit Jalla's hilltops, across a small valley, hitting the Israeli neighborhood of Gilo on the southern edge of Jerusalem. Gilo was built on land Israel captured in the 1967 Mideast war, and the Palestinians want it as part of a future state.

Thirty-one Israeli apartments and a synagogue in Gilo were hit Monday night, prompting the army send in tanks, armored personnel carriers and jeeps early Tuesday. One Palestinian was killed and 11 wounded in fierce gunbattles throughout the night.

Israeli troops have staged multiple incursions into Palestinian territory following Palestinian bombings and shooting attacks. But in all the previous cases, Israel quickly withdrew after knocking down Palestinian security buildings or outposts used by gunmen.

In Ramallah, tens of thousands of Palestinians thronged to the funeral of Zibri, 63, the highest-ranking Palestinian slain in a monthslong Israeli campaign of targeted killings of suspected militants.

Amid cries for revenge, masked pallbearers bore Zibri's body through the streets while gunmen shot round after round of automatic-weapons fire into the air.

Palestinian refugees also staged angry demonstrations Tuesday in Syria, Jordan and Lebanon to protest the killing of Zibri and U.S. support Israel.

Thousands staged a one-day strike at Syria's largest Palestinian refugee camp, al-Yarmouk, five miles south of Damascus.

Zibri -- who headed the second-largest PLO faction, the radical Popular Front for the Liberation of Palestine -- was killed Monday when Israeli helicopters fired two missiles into his office while he was sitting at his desk.

Israel said Zibri had a long history of organizing bomb attacks against Israel.