Oil prices held firm on Tuesday on escalating violence rocking the Middle East and hopes that Russia and OPEC would cut a deal to restrain output.

International benchmark Brent crude futures for January delivery were trading four cents higher at $19.75 a barrel late afternoon after hitting a high of $20.04 earlier in the day. 

U.S. light crude were down six cents at $20.03. 

Brent crude futures touched a 29-month low of $16.65 on November 19 after OPEC said it would not cut production if non-OPEC countries did not make similar reductions. 

Crude oil traded at a high of $27.45 just prior to the September 11 hijacked plane attacks on the United States. 

Tuesday's earlier price spike came as Israeli aircraft continued to pound Palestinian targets in retaliation for one of the most devastating waves of suicide bombings inside the Jewish state in years. 

Although such violence does not directly impact crude oil supplies, dealers worry that major oil-producing countries in the Gulf could be dragged into the conflict. 

Israel attacked Palestinian cities across the West Bank and Gaza Strip on Tuesday, hitting just beyond President Yasser Arafat's main West Bank headquarters while he was inside. He escaped injury. 

But Israeli missile strikes killed at least two Palestinians in Gaza City and wounded more than 100 people, Palestinian hospital officials said. 

All Eyes on Russia 

Although the Middle East violence pushed up prices, dealers are looking for a deep production cut from Russia to give the market sustained support. 

OPEC has said it will cut output by 1.5 million barrels per day (bpd) only on condition that non-OPEC countries remove 500,000 bpd from the market. 

Russia, the key to a comprehensive deal, has disappointed OPEC by so far only offering to cut a token 50,000 bpd. 

But Russian oil company executives say they have been informed that Energy Ministry officials will propose a huge 380,000 bpd cut in output for December at a meeting on Tuesday or Wednesday with the Russian Prime Minister Mikhail Kasyanov. 

But they said the initiative, which appears to be a negotiating position, was very unlikely to make progress. 

OPEC Secretary-General Ali Rodriguez will not travel to Russia this month, despite an earlier plan to do so, an OPEC source said on Tuesday. He had hoped to go to Russia to discuss the country's plans to restrict oil exports next year in cooperation with OPEC. 

The source said the trip was "pending an invitation from the Russian government which never arrived." 

Although dealers have digested the mixed signals from Russian officials, there is growing confidence that Moscow will commit to deep cuts. 

That optimism was reflected in the sharp rise in oil prices since Friday as Russia appeared closer to meeting OPEC's demands. 

"The market keeps us guessing. I think to be honest the next few days all eyes will be on Russia. Given the current mood and stronger prices it would appear that the market is looking for further cutbacks from Russia," said Tony Machacek at Prudential Bache in London. 

"The renewal of aggression between Palestine and Israel throws another element into the equation. It has had a supportive effect in combination with comments from Russia." 

OPEC has been struggling to return oil prices to a target $22 to $28 a barrel level but this year's global economic downturn has held the cartel back.