Israeli troops swept through a Palestinian neighborhood of Jerusalem, removing residents from their homes and making two arrests as Secretary of State Colin Powell was bringing his truce mission to an end without signs of a breakthrough.

Israeli Prime Minister Ariel Sharon has eased objections to Yasser Arafat's taking part in peace talks. Powell, after meeting Sharon on Tuesday, indicated he would be satisfied with achieving something less than a formal truce before leaving for Egypt later Wednesday and then for Washington.

In a two-hour meeting with Powell, the Palestinian leader demanded that the international community and the Bush administration work to break his isolation by the Israelis.

``They are continuing their aggression against the Palestinian people,'' Arafat said in a darkened hallway of his battered headquarters after Powell left. No one escorted the secretary to his car, and Powell left Ramallah without comment to return to Jerusalem.

The Qatar-based Arab satellite station Al-Jazeera quoted Palestinian Information Minister Yasser Abed Rabbo as saying ``the Powell-Arafat meeting was catastrophic.''

Overnight, Israeli forces sealed off the Palestinian neighborhood of Issawiyah in Jerusalem, removing residents and searching their homes for terrorist suspects. Police spokesman Gil Kleiman said two men were arrested.

Residents said the military brought bulldozers into the village. Men were taken to a gas station and women and children to a school. Police imposed a nearly 18-hour curfew — rarely done inside Jerusalem's city limits — when families were barred from returning to their homes. Many slept in their cars.

On Tuesday, Israeli forces entered three Palestinian villages near Jerusalem — Abu Dis, Izzariyeh and Sawahra As-Sharkiyeh — declared a curfew and searched for suspects, while Sharon pledged to pull his forces out of two main West Bank towns within a week.

An Israeli military official said information had been received indicating an attack was in the works and the attackers would be from Abu Dis and Izzariyeh.

Palestinian Parliament Speaker Ahmed Qureia, who lives in Abu Dis, said the raids belied Sharon's pledge to begin pulling back soldiers.

``What is needed is ... to stop these incursions and to withdraw immediately from Palestinian cities and villages,'' Qureia said.

Since the fighting began 18 months ago, 1,508 Palestinians and 468 Israelis have been confirmed killed, but the Palestinian death toll from fighting this week, mainly in the Jenin refugee camp, was still unclear.

Israeli troops and tanks were still surrounding Arafat's office, holding the Palestinian leader a virtual prisoner, but Sharon indicated he was backing away from his policy of isolating the Palestinian leader and excluding him from peace efforts.

An Israeli tank blocking the stairs leading to Arafat's compound rumbled back to allow Powell and his security team into the building for the secretary's the final scheduled meeting with Arafat on his weeklong truce effort.

Putting forward a proposal for a regional peace conference, Sharon said at first that Arafat would not be allowed to attend. But on Tuesday, he softened that, telling Israel TV that who represents the Palestinians is ``a secondary issue.'' He said, ``It's not important to me which of them will be here.''

In local broadcast interviews for Israel's Independence Day, marked Tuesday night and Wednesday with ceremonies and celebrations under tight security, Sharon repeated a pledge to President Bush that he would pull troops out of the West Bank towns of Jenin and Nablus within a week. However, he said he would maintain a siege on Bethlehem and Ramallah until suspected terrorists surrender.

At the Jenin refugee camp, scene of the heaviest fighting between Israeli soldiers and Palestinian gunmen and bombers, Red Cross teams joined the Israeli military in searching for bodies. Israel said it allowed humanitarian groups to bring food and medicine into the camp and were working to restore water and electricity.

Palestinians continued to charge that Israeli forces committed massacres in the camp, and that there was a shortage of food, water and medicine.

They got support from Queen Rania of Jordan, a Palestinian herself, who spoke of a ``human rights catastrophe'' in the West Bank in an interview with CNN's Larry King. Queen Rania, who led a demonstration in Amman protesting the Israeli incursion several days ago, said the military operation is silencing moderates on both sides. ``At the moment, both sides are losing. Nobody's a winner here, except extremists,'' she said. 


Amnesty International, a leading human rights group, complained Tuesday that Israel denied permission for pathologist Derrick Pounder to enter the Jenin camp. The group said Pounder's goal was to help determine the causes of death, which would clarify what happened there.

In Gaza, the militant Hamas issued an appeal to Muslims around the world to donate money, listing the prices of bullets, rifles and explosives. A posting on the Hamas Internet Web site said the group is manufacturing rockets and other weapons and said that Hamas was responsible for 65 percent of Israeli deaths during the fighting.