Secretary of State Colin Powell said the United States does not consider Palestinian leader Yasser Arafat a terrorist because he is the recognized leader of the Palestinian people and has worked with Israel and the United States toward peace in the Middle East.

"When this current terrible crisis we are in right now passes — the Israeli army finishes its sweeps of these various cities and towns — we will be right back to seeking a political solution. And that political solution will need two parties, the Israelis and the Palestinians, and right now Chairman Arafat is the leader of the Palestinian movement.  And so, we are trying to keep our channels open to him, we are talking to him, we are trying to get him into the Tenet work plan," Powell said Tuesday, referring to the cease fire plan proposed by Central Intelligence Agency Director George J. Tenet.

On Monday, President Bush called on Palestinian leader Yasser Arafat to halt suicide bomb attacks in Israel and the West Bank, but declined to say that Arafat is harboring terrorists.

"There will never be peace so long as there is terror, and all of us should fight terror. I'd like to see Chairman Arafat denounce the terror," Bush said during a meeting with New York's governor and New York City's mayor.

"Suicide bombings in the name of religion is simple terror," he added.

Bush said that Arafat has made past efforts to negotiate peaceful settlement, and has signed on in principle to peace-keeping proposals put forth by U.S. Special Envoy Gen. Anthony Zinni, who remained in the region through the worst violence since the latest conflict began almost 19 months ago. Therefore, Bush concluded, Arafat does not fit into the same category as other leaders who support terrorism.

However, Palestinian militants continue to inflict damage on Israeli property and kill innocent civilians. And in a chilling discovery, Fox News obtained a leaflet passed around in Palestinian communities calling for attacks on U.S. interests.

It is the first time in this conflict that Palestinian groups have called for attacks on U.S. targets. Addressing their appeal to the Islamic and Arabic world, the leaflet quotes from the Quran, repeating a passage frequently used by Usama bin Laden: "Kill them wherever you find them and kick them out from the places that they have expelled you from."

Nonetheless, separately from the president, the State Department criticized Israel's drive into Ramallah.

"We are greatly concerned" about civilian casualties and Israel should "carefully consider the consequences" of its military actions, spokesman Philip Reeker said.

Bush is walking a careful line between calling for an end to violence and supporting Israel's right to defend itself from suicide bombings, the latest in Jerusalem Monday evening that killed only the suicide bomber and injured the Israeli police officer who tried to stop him.

As for Israeli Prime Minister Ariel Sharon, Bush urged him to "keep a pathway to peace open," and said he believes he remains committed to negotiating peace.

White House spokesman Ari Fleischer told reporters Monday that Bush did not give tacit approval for Israel to crackdown on suspected Palestinian bombers, and said, "the Israelis did not seek a green light" from the United States.

Later, Fleischer said Bush does support Israel's "right to defend herself" but said the "future can not be one of bombing after reprisal after bombing."

Asked how that cycle could end, Fleischer said Arafat could order a ban on suicide bombings.

"It would be constructive if Chairman Arafat ... would take that step and say suicide bombings are not the way to achieve peace in the region," Fleischer said.

The president's comments about the spiraling violence were the first by the president in two days and came after members of the Senate went on the weekend talk shows to pressure the president to get more involved in the Mideast peace process.

Bush said those who criticize him about being uninvolved "must have not been with me in Crawford (Texas) when I was on the phone all morning long" talking to leaders in the region.

Bush called five world leaders on Saturday, but none Sunday. He spoke with national security adviser Condoleezza Rice after the first bombing, just before he attended Easter services at a church near his Crawford, Texas, ranch, spokesman Gordon Johndroe said.

Powell is kept up the diplomatic front into the week.  Sunday and Monday, Powell spoke with Spanish Foreign Minister Josep Pique, European Union foreign policy chief Javier Solana, Japanese Foreign Minister Yoriko Kawaguchi, U.N. Secretary-General Kofi Annan, Israeli Foreign Minister Shimon Peres and British Foreign Secretary Jack Straw, Fleischer said.

Fox News' Jennifer Griffin and the Associated Press contributed to this report.