On the eve of Orthodox Easter, serious high-level negotiations were under way, aimed at resolving the month-old standoff at one of Christianity's holiest shrines, Palestinian officials said.

The talks over the standoff at the Church of the Nativity, the traditional site of Christ's birth, were being held at an undisclosed location, said the officials, speaking on condition of anonymity.

Earlier Saturday, Israeli troops killed two Palestinians, one a wanted militant in the church compound, and the Israeli army said a Palestinian bombmaking factory was discovered only about 100 yards from the church compound.

The developments in Bethlehem — where the last major contingent of Israeli troops remains in the wake of a massive military offensive in the West Bank last month — came as Prime Minister Ariel Sharon was preparing for a visit to Washington to discuss President Bush's plans for a Mideast peace conference. Sharon was scheduled to leave Sunday.

Advisers to Sharon said he will propose that terms for a long-term interim deal with the Palestinians be arranged at a regional conference attended by Israel, the Palestinians, the United States and moderate Arab states.

Plans for the peace conference were announced Thursday by Secretary of State Colin Powell, with the backing of the United Nations, the European Union and Russia. U.S. officials have suggested the conference will be held in June.

Israel Radio reported Saturday that the conference would take place in Turkey. A Turkish Foreign Ministry spokesman said Turkey had offered to host it but was not aware the invitation had been accepted. Israeli officials were not immediately available for comment.

The gathering would be held at the level of foreign ministers, avoiding the issue of Palestinian leader Yasser Arafat's attendance. Sharon has branded Arafat a terrorist and has said he does not consider him a partner in negotiations.

The Israeli army said the Palestinian fatally shot in Bethlehem was Halaf Najazeh, a wanted militant from Arafat's Fatah movement. He was taken to an Israeli hospital, where he died, the army said.

About 150 Palestinians, including about 30 gunmen, are holed up inside the church, which is ringed by Israeli forces. The standoff, which began April 2, cast a pall over Orthodox Christian celebrations of Holy Week, which culminates with Easter on Sunday, a month after the holiday was celebrated under the Western church calendar.

Israel has insisted that the armed men surrender or accept exile. Palestinian officials have demanded they be taken to the Gaza Strip.

A few yards from the church, a 14-year-old Palestinian boy was moderately wounded by an explosion near Manger Square, hospital officials said. A sign outside the building described it as a medical clinic, but Israeli troops who later searched the building said it was an explosives laboratory.

The army showed reporters at the scene bags of gunpowder and paraphernalia indicating support for the militant Hamas group, and a collapsed wall in the building and broken glass indicated an internal explosion.

In the Gaza Strip, a Palestinian security officer was killed at a central junction on Gaza's main road, Palestinian hospital officials said. The Israeli military said troops shot and killed a Palestinian who jumped out of a car waiting at a roadblock and opened fire at Israeli troops.

Palestinian security officials said troops opened fire without provocation, killing the man. They identified him as Ramse Eid, 25.

Arafat, released from confinement at his West Bank headquarters in Ramallah this week, convened his Cabinet on Friday for the first time since Israel launched a military offensive in the West Bank on March 29, targeting Palestinian militants responsible for attacks on Israelis.

In a statement, the Palestinian Cabinet reiterated its condemnation of terrorist attacks. The Cabinet "rejects and condemns all operations against civilians, whether Palestinians or Israelis," a statement said.

Arafat said he would discuss the regional conference with Arab leaders, but it was not clear whether he would attend a meeting of Arab League foreign ministers in Cairo next week.

He has been confined to Ramallah since December, when Israel destroyed his helicopters in retaliation for Palestinian attacks on Israelis.

Nabil Amr, Arafat's minister of parliamentary affairs, submitted his resignation amid growing calls for government reform in the wake of Israel's offensive.

Palestinian Cabinet ministers said the fate of two imprisoned senior officials would be left up to the Palestinian attorney general, who is widely expected to rule in line with Arafat's wishes.

Ahmed Saadat and Fuad Shobaki were imprisoned as part of a U.S.-brokered deal that led to Arafat's release from Israeli confinement this week.

Israel accuses Saadat of involvement in the killing of Israeli Tourism Minister Rehavam Zeevi and Shobaki of masterminding an attempt to smuggle a boatload of arms into Palestinian areas.

Palestinian officials, speaking on condition of anonymity, said they expected the two to be freed soon, despite the U.S. deal. In Washington, State Department spokesman Richard Boucher said that "the arrangement is to keep these people in custody."

Saadat and Shobaki are being held, along with the four convicted Zeevi assassins, in a prison in the West Bank town of Jericho, with security experts sent by the governments of the United States and Britain supervising the detention.

In Gaza City, two activists from Saadat's group, the Popular Front for the Liberation of Palestine, were arrested by Palestinian security officers, a spokesman said. Palestinian security officials did not comment on the arrests. A Palestinian security source said the arrests were in connection with an attack on the British Council building in Gaza last week that caused damage but no injuries.