Israeli forces were positioned in at least two buildings overlooking Palestinian leader Yasser Arafat's battered compound Tuesday, underscoring Israel's insistence that wanted Palestinians still inside must surrender despite the hasty pullback of Israeli tanks from the site this week.

Inside, Arafat convened his Cabinet for the first time since before the siege. Its members, unhappy about the continued Israeli troop presence in Ramallah and other West Bank towns, also bitterly condemned U.S. legislation urging recognition of Jerusalem as Israel's capital.

Israeli tanks crashed into the compound on Sept. 19 after a homicide bombing that killed six people in Tel Aviv. The Israeli forces lay siege to Arafat's building and demanded the handover of 19 men who were among the 200 inside with the Palestinian leader. The U.N. Security Council and the United States demanded the siege end, causing Israel to retreat Sunday from the compound's immediate vicinity.

Palestinians saw the pullout as a significant victory, and Prime Minister Ariel Sharon -- who returned Tuesday from a two-day trip to Moscow -- came under scathing criticism from Israelis across the political spectrum for not having foreseen the operation would lead to an ignominious dead end.

But on Tuesday, Israeli Defense Minister Binyamin Ben-Eliezer said the "blockade" was continuing, though from a greater distance, "to allow a certain amount of inspection so that Israel can put its hands on all those inside who are suspects if they try to come out."

Israeli troops were seen on the roof of the eight-story Palestinian Ministry of Culture building, about 500 yards from Arafat's office, and on the roof of another eight-story building under construction. They were also seen at least briefly in a nearby house. The army said it could not comment on deployments. When troops took over the house late Monday, Palestinian security sources said snipers were posted there, but these could not be seen Tuesday.

It was not clear whether any of the wanted men had left the building during the recent days' rush of visitors entering and leaving -- including the convening of Arafat's Cabinet.

All the Cabinet ministers resigned on Sept. 12, when the Palestinian legislature was poised to vote no-confidence to protest mismanagement and corruption. Arafat had until Sept. 25 to name a new one, but the Israeli siege put this on hold, and one minister said legislators would be asked to approve a delay.

On Tuesday, ministers and other Palestinians fumed at the new U.S. legislation that encouraged recognition of Jerusalem as Israel's capital, warning that it would complicate peace efforts and could cost lives.

Cabinet Minister Saeb Erekat said President Bush's signing of the bill Monday "undermines all efforts being exerted to revive the peace process and put it back on track." He called it "a flagrant violation" of agreements signed by the United States and Israel to negotiate Jerusalem's permanent status.

Bush has said he doesn't consider the bill's provisions on Jerusalem to be binding.

There was no Israeli reaction to the bill, in which Congress specified for the first time that no funds may be used for the U.S. consulate in Jerusalem unless it is under the supervision of the American ambassador to Israel. The consulate reports directly to the State Department, not the U.S. Embassy in Tel Aviv, and has served as the United States' unofficial embassy to the Palestinian Authority.

The bill also said no money could be spent on official U.S. documents that listed Israel without identifying Jerusalem as the capital.

Israel captured east Jerusalem and its sites holy to Jews, Christians and Muslims in the 1967 war, annexing it. The current government sees the entire city as Israel's capital. The Palestinians claim east Jerusalem for their own capital.

The previous, more moderate government of Ehud Barak had offered the Palestinians a share of east Jerusalem -- but the sides could not agree on the details, or other issues, and peace talks broke down in January 2001 after the eruption of violence a few months earlier.

The United States has not recognized the annexation and says the status of Jerusalem should be determined in negotiations. Congress has passed previous measures requiring the government to move the U.S. Embassy from Tel Aviv to Jerusalem, but successive presidents have delayed it for security reasons.

Bush insisted that "U.S. policy regarding Jerusalem has not changed" and he would not treat the bill's provisions as an order because they would "impermissibly interfere with the president's constitutional authority to conduct the nation's foreign affairs."

U.S. Embassy spokesman Paul Patin said of the clauses on Jerusalem: "We don't consider them as binding."

But in statements issued in Beirut, the militant Hamas and Islamic Jihad called the U.S. bill "aggression" against the Palestinians.

Reacting to a critical report by a human rights group, the Israeli Army and a Palestinian official on Tuesday denied accusations by London-based Amnesty International that both sides inadvertently encourage the killing of children.

The Israeli army spokeswoman, Brig. Gen. Ruth Yaron, said in a statement that military police have opened about 220 investigations since the fighting began, some in connection with incidents in which children were killed.

Palestinian negotiator Saeb Erekat said criticism of the Palestinian Authority was unfair. "The Palestinian Authority has always stood to condemn all attacks in Israeli civilians, not just children," he said.