An Israeli soldier and a Palestinian gunman were killed Wednesday as Israel mounted a massive manhunt in the rocky hills of the West Bank for militants who ambushed a bus near a Jewish settlement, killing eight Israelis.
Separately, Palestinian leader Yasser Arafat denounced U.S. demands that he be replaced and said he would run in January elections if the PLO leadership approves his candidacy.
The toll of Tuesday's attack reached eight Wednesday when a baby died after being prematurely delivered by Caesarean section, doctors said; the boy's mother, Yehudit Weinberg, 22, was in serious condition. Others who died in the ambush included an 8-month-old girl, her father and grandmother
Heavy exchanges of fire continued Wednesday between Israeli army forces and Palestinian gunmen in the area of the Jewish settlement of Emmanuel where the attack occurred. A Palestinian gunman and an Israeli soldier, Lt. El'ad Grenadier, 21, were killed in gunbattles, military officials said. Three Israeli soldiers were also injured, one seriously, the army said.
Israel called off a high-level meeting with Palestinians scheduled for Wednesday after the ambush.
The well-planned attack, claimed by three different Palestinian groups, came as officials from a Mideast policy planning group called the Quartet met in New York to try to come up with a formula to try to stop the 221-months of Israeli-Palestinian violence and restart peace talks.
Officials from the United States, Russia, European Union and United Nations expressed concern for the plight of the Palestinians but differed over the role of Palestinian leader Yasser Arafat.
Israel blamed Arafat for the attack at the entrance to the settlement of Emmanuel, which is located between the Palestinian towns of Nablus and Qalqiliya in the northern West Bank. Israeli forces control those towns and five others after launching an invasion after Palestinian suicide bombings in Israel last month.
Raanan Gissin, spokesman for Israeli Prime Minister Ariel Sharon, warned that Israel would remain in the areas until Palestinian security forces are revamped to stop terrorism.
Israeli Foreign Minister Shimon Peres, who advocates resuming talks with the Palestinians, canceled meetings planned for Wednesday and said the Palestinians were harming themselves by carrying out attacks.
Peres met with Sharon and other ministers Wednesday to discuss the situation, Israel Radio reported.
Israel has insisted that Arafat be replaced, and President Bush agreed. However, in the New York talks, the other members of the Quartet disagreed.
Arafat denounced Bush's call for a leadership change, saying in an interview with Associated Press Television News he would run in January elections if the PLO leadership agreed.
"They (the United States) have to understand that this is not Afghanistan and that they can't change things as they want," he said.
The Palestinian Authority, in a rare move apparently aimed at the Quartet meeting, condemned the attack in the West Bank "as part of its continuous policy which rejects targeting civilians, whether they are Israelis or Palestinians."
While the Palestinian leadership has denounced suicide bombings in Israel, it rarely criticizes attacks in the West Bank, where many Palestinians consider Jewish settlers legitimate targets in the struggle for control of the territory the Palestinians want for a state.
U.N. Secretary-General Kofi Annan denounced the "terrorist" ambush as did Amnesty International, which last week called suicide attacks against Israeli civilians crimes against humanity.
Three Palestinian groups rushed to claim responsibility for the first fatal attack on Israeli civilians in nearly a month: Hamas, the radical Democratic Front for the Liberation of Palestine and the Al Aqsa Martyrs Brigade, affiliated with Arafat's Fatah movement.
The attackers -- numbering either three or four -- were disguised as Israeli soldiers. First they set off a bomb that stopped the bus, which was armor-plated against gunfire. Then they shot at the passengers and threw grenades.
At least three pregnant women -- one Israeli and two Palestinians -- have been killed in the current fighting. But Weinberg's boy, with whom she was eight months pregnant, was believed to be the youngest victim of the fighting. Previously, a 4-month-old Palestinian girl was thought to have been the youngest.
Rachel Gross, a 17-year-old high school student, said the bus lurched into the air when the powerful bomb went off.
"I got down under the seats, as fast as I could, because the terrorists began firing bursts and throwing grenades, it went on and on it seemed like eternity," she said while visiting victims at a hospital. She was not hurt.
In more than 21 months of fighting, 1,759 people have been killed on the Palestinian side, and 574 on the Israeli side, including Tuesday's attack.
The last fatal attack on Israeli civilians occurred June 20, when a gunman killed five Israelis in the Jewish settlement of Itamar, near Nablus in the north West Bank. In that period, 44 Palestinians have been killed.
Tuesday's attack was the second at the entrance to Emmanuel, an ultra-Orthodox settlement of about 5,000 people. Eleven people were killed in a similar Palestinian operation Dec. 12.
Settlers had complained then about inadequate security, and on Wednesday Defense Minister Binyamin Ben-Eliezer met with them and promised to build a fence around Emmanuel as well as a new access road, settlers said.
They also said the government had promised $20 million to increase security at settlements. There was no immediate comment from Ben-Eliezer's office.