Israeli tanks massed at Gaza and Israel called up military reservists Thursday as the nation geared up for a major retaliation in the wake of Tuesday night's Palestinian suicide bombing in a pool hall in a suburb of Tel Aviv.

Palestinians arrested 16 members of Hamas, the Islamic militant group that claimed it carried out a deadly suicide attack earlier this week, a first sign that Yasser Arafat was taking action against terror groups.

Tanks were parked off Gaza, the home base of the Hamas militant group, and Israeli forces around the strip were being beefed up Thursday night.

But Hamas leaders in Gaza — a sliver of Mediterranean coastline two-thirds of which is under Palestinian autonomy — said they were going about life as usual.

Hamas founder Sheik Ahmed Yassin went ahead with the afternoon wedding reception for one of his seven daughters, his son Mohammed said. A Yassin deputy, university lecturer Mahmoud Zahar, said he was staying at home to prepare exams and a Hamas spokesman, Abdel Aziz Rantisi, said his schedule was filled with TV interviews.

Mohammed Dahlan, Yasser Arafat's security chief in Gaza, said the Palestinians were expecting an attack.

"Everyone is prepared and our people know how to confront the occupation," said Dahlan, who has been in the West Bank town of Ramallah for months. "We said this before, and we mean it now — if the occupation forces carry out an aggression, we will face this aggression."

Late in the day, an Israeli official said a deal was reached whereby 13 suspected militants inside Bethlehem's Church of the Nativity would be divided among several countries. The Cypriot foreign minister and Palestinian sources said the militants would be taken first to Cyprus and later go elsewhere.

Under the deal to end the 38-day standoff at the traditional birthplace of Jesus, Italy and Spain would take some of the militants, while Austria, Greece, Luxembourg and Ireland might take the rest, said an Italian Foreign Ministry official. The official, who spoke in Rome on condition of anonymity, said the move was a "humanitarian decision" — meaning the 13 would likely not be kept in prison.

Also Thursday, the Israeli Cabinet approved unspecified reprisals in response to Tuesday's bombing in a pool hall in a Tel Aviv suburb. Fifteen Israelis were killed in the attack, the deadliest since Israel launched its West Bank military offensive March 29 in response to a wave of suicide bombings.

The reserve call-up was smaller than the one that preceded that operation, during which troops occupied six of the eight main Palestinian towns in the West Bank for periods of up to several weeks and fought running battles with Palestinian gunmen.

Foreign Minister Shimon Peres hinted Israel might have a more limited operation in mind this time, "striking at centers from which the suicide attackers come, or the houses from which they come, or the nests from which the organization of suicide bombers comes."

Military sources said the operation will be centered on Gaza, but may not be restricted to the strip. The objective is to hit at Hamas leaders and end the sense of immunity the militants in Gaza have enjoyed, senior official sources said.

Military commentators also said they expected the Gaza operation to be more limited than the West Bank offensive. Fighting in densely populated Gaza would be much more complicated and could expose troops to greater risks.

European Union envoy Miguel Moratinos condemned the suicide attack, but said the EU was "very concerned" it could lead to increasing violence and a new military action. The EU was working with the United States, Russia and the United Nations to try to prevent that, he said.

Palestinian Cabinet minister Saeb Erekat criticized the expected operation.

"Such an attack will lead to disastrous consequences for the Palestinian people there," he said. "This will be adding fuel to the fire."

In a televised address Wednesday, Arafat said he had ordered his security forces to arrest Palestinian terror groups. Palestinian Information Minister Yasser Abed Rabbo said Thursday the Palestinian Authority "has already taken some measures to control the security situation."

In Gaza City, Hamas officials reported that 16 of their members were arrested Thursday by Palestinian police. None of the senior members of the group were among those taken into custody, however.

In the past, Palestinian police have temporarily detained Hamas leaders, then released them soon after. In some cases, it appeared the Palestinians took the moves largely to protect the Hamas leaders from possible Israeli attack.

Israel has accused the Palestinian Authority of only trying to give the appearance of a crackdown on militants.

President Bush's spokesman reacted cautiously, saying the key test will be whether those arrested remain in custody. "We're looking into the reports of the arrests," White House spokesman Ari Fleischer said.

The Associated Press contributed to this report.