The U.S.-supervised truce talks between Israel and Palestinian Authority officials were thrown into doubt Thursday when Israel canceled the third round of meetings following a suicide bombing in the heart of Jerusalem.

The second round of talks ended without agreement early in the morning, with Israelis and Palestinians arguing over who should take the first steps. Hours later, Israel staged arrest raids in three West Bank villages.

Both sides left the second meeting still expecting to reach an agreement before Monday — the tentative date, according to Palestinian officials, for a meeting between Vice President Dick Cheney and Yasser Arafat in Cairo. Cheney said earlier this week he would only meet with the Palestinian leader once a cease-fire was in place.

Also, Israeli Prime Minister Ariel Sharon has linked Arafat's departure from the Palestinian territories to a cease-fire. Arafat wants to attend an Arab summit late next week in Beirut, where Saudi Arabia is to present a plan offering Israel peace with the Arab world in exchange for a withdrawal from occupied territories.

In the truce talks, based on an agreement brokered last year by CIA chief George Tenet, Israelis and Palestinians remained far apart on key issues. Israel wants to implement the plan in four to five weeks — double the time envisioned by the Palestinians, participants said.

Israel says that in the first stages, the Palestinians must disarm militias and arrest suspected militants. The Palestinians insist that Israel first withdraw its troops to positions they held before the outbreak of fighting in September 2000.

Despite the difficulties, both sides expressed optimism prior to the Jerusalem bombing.

``This is the continuation of tough bargaining,'' said Israeli Transport Minister Ephraim Sneh. ``It is not simple, but it has more of a chance now than a short time ago.''

The Palestinian security chief in the West Bank, Jibril Rajoub, said the gaps were ``huge,'' but that both sides are working hard to bridge them.

After the truce talks ended, Israeli troops raided three Palestinian-controlled villages near the West Bank town of Jenin and arrested more than 20 people, Palestinian officials said. In the village of Yamoun, troops arrested five brothers because they couldn't find the sixth, who is wanted, the officials said.

The army confirmed the raids, and said troops withdrew once the sweeps were completed. Palestinian officials said soldiers remained on the outskirts of the villages.

Earlier this week, under U.S. pressure, Israel had withdrawn from Palestinian-run territory as part of truce efforts. The withdrawal capped the largest Israeli military operation in a generation, aimed at hunting down suspected militants.

On Wednesday, a Palestinian suicide bomber blew up an Israeli bus on a main highway in Israel's north, killing seven other passengers, including four soldiers, and wounding more than 20. The militant Islamic Jihad claimed responsibility.

The bomber crossed into a section of Israel where Israeli Arabs live, near the line with West Bank. Media reports said he spent the night in the Israeli Arab town of Um el-Fahm. Early Wednesday morning, he boarded a bus near the town and blew it up, though it was inevitable that Israeli Arabs would be among the casualties.

The Palestinian Authority criticized the bomb attack.

``The Palestinian leadership's efforts are concentrated right now on ending the Israeli aggression and lifting the siege and putting an end to the collective punishment,'' said a statement by the official Palestinian news agency, Wafa. ``This requires from all not to do any military operations against civilians inside Israel.''

Islamic Jihad identified the bomber as Rafat Abu Diyak, 24, and said the attack was revenge for Israel's killing of group members in recent military strikes. Israel's raids included an incursion into Diyak's hometown of Jenin earlier this month, aimed at rooting out militants.

Diyak's father Tahseen accepted condolences at the family's home in a poor neighborhood in Jenin. ``Thank God for everything, my son will go to heaven,'' Tahseen Diyak said.

The Associated Press contributed to this report.