In a sign of a possible cooling down of the still-roiling Mideast situation, Israel postponed an offensive into the Gaza Strip and recalled military reservists Sunday.

Meanwhile, nearly 1,000 crowded into Bethlehem's Church of the Nativity in the Christian holy site's first sunday services since a five-week standoff ended there.

Israel held off in the planned incursion into Palestinian territory because the government is "willing to give a chance (to peace negotiations) and wait," Israeli Defense Minister Binyamin Ben-Eliezer said. But he emphasized that Israel would not hesitate to respond in the wake of renewed attacks or violence.

"What we are going to do ... what will be the size of the operation, this will depend on the other side," he said.

Israeli media said the assault was put off because of U.S. pressure. The pause in military action appeared to provide an opening for diplomacy, and the U.S. administration announced earlier that it would send CIA Director George Tenet to the region, but no date was set.

Tenet negotiated terms of a cease-fire last May, but the truce was never implemented.

In Bethlehem, worshippers returned to the Church of the Nativity for the first services since the end of a five-week siege of the church. The smell of incense filled the air as different Christian denominations held Sunday prayer services.

"We are happy to be here, to attend the services after a long absence," Alberta Katan, 65, said as she lit candles near the grotto believed to mark the birthplace of Jesus.

At the Vatican, Pope John Paul II described his great relief over the end of the siege and the resumption of religious services and urged mutual trust between Israelis and Palestinians.

"Bethlehem's universal message is love, justice, reconciliation and peace," the pontiff said. "And it is on these bases that one can construct a future respectful of the rights of the Israeli and the Palestinian peoples, in mutual trust."

Meanwhile, Yasser Arafat prepared to visit Jenin, Bethlehem and Nablus on Monday -- his first trip outside of Ramallah since December, when Israel forbade his freedom of movement.

Israel said it had allowed Arafat to make the trip in a Jordanian helicopter.

All three cities were flashpoints of deadly violence between Israeli troops and Palestinian gunmen during the last weeks as Israel launched operation "Defensive Shield," to root out suspected terrorists from the West Bank.

But in Tel Aviv, matters grew tense when the ruling Likud Party voted against the creation of a Palestinian state. The vote was a major defeat for Israeli Prime Minister Ariel Sharon, who is locked in a fierce political battle for leadership with former prime Minister Benjamin Netanyahu.

The vote came only hours after Sharon said in a 20-minute speech to the party central committee that Israel cannot negotiate with the Palestinians until terrorism is completely ended and their leadership undergoes a massive overhaul.

"Peace is possible, but there must be two basic conditions," Sharon said. "First, a complete halt to the terror, the violence and incitement. Two, the Palestinian Authority must carry out internal reforms in every way -- on security, the economy, the legal system and within society.

"Only afterward, when we see how the Palestinians are building their society and self-government, after we are convinced that their faces are turned toward peace, then we can move toward discussions on the exact nature of our relations," he said. "Only then can we sign on a final peace agreement."

Palestinian negotiator Yasser Abed Rabbo dismissed Sharon's conditions.

"This is his new formula for not making any serious steps toward a political solution to the conflict," he said.

Also Sunday, In the Gaza Strip, a Palestinian shot his Israeli employer in the head Sunday just outside of the Jewish settlement of Rafiah Yam, said Maj. Assaf Librati, the local Israeli military commander. The attacker was caught shortly after with a pistol with a silencer. Al Aqsa Martyrs Brigade, a militia linked to Arafat's Fatah movement, claimed responsibility for the attack.

Israel Police said Sunday that two Israeli Arab sisters had been arrested on suspicion they planned to assist in carrying out an attack in the northern port city of Haifa on Israeli Independence Day, which fell April 17 this year, according to the Jewish calendar.

Police said the two had contacted the Tanzim militia, part of Fatah, via the Internet. The two were arrested April 16, but a gag order on the case was only lifted Sunday.

The Associated Press contributed to this report.