Israel accelerated its deadly campaign against militants Tuesday, killing a water-pipe vendor in a botched missile strike against Hamas (search) gunmen in the Gaza Strip that also wounded 26 bystanders.

Three Hamas members managed to flee their car in a crowded Gaza City (search) street before the missiles hit, witnesses said. Five children were among the wounded, doctors said.

Israel has killed seven militants in two missile raids in Gaza and stepped up military operations in the West Bank (search) since 21 people died in a Hamas homicide bombing on a Jerusalem bus last week. Hours before the Gaza Strike, Israeli soldiers dressed as Arabs snatched two wounded militants, one involved in a homicide bombing, from their beds in a West Bank hospital.

The violence has frozen progress on the U.S.-backed "road map" peace plan and exposed the reluctance of Palestinian Prime Minister Mahmoud Abbas to confront the armed groups.

The Israeli crackdown, backed by warnings that every militant is marked for death, has also forced members of Hamas and other groups to go deeper into hiding. Hamas members said they were changing their appearances -- shaving beards, losing weight, even disguising in women's robes. Leaflets hung in mosques throughout the Gaza Strip instructed Hamas activists to take precautions -- such as not traveling in groups, avoiding use of their telephones -- so as not to present easy targets.

In the latest Israeli operation, a helicopter fired three missiles at a car stuck in a traffic jam on a crowded residential street just north of Gaza City, near the Jebaliya refugee camp.

"The people in the car jumped out and ran in two different directions" after one rocket hit near the front of the white car, said Shadi Tayan, who owns a bookstore in the area. After the men fled, two more missiles hit.

Hamas sources said the car was carrying three of its members, including Khaled Masoud, the brother of a Hamas military wing commander killed in an Israeli raid in Gaza three months ago. They said Masoud was wounded in the strike. An Israeli security official said Masoud was responsible for building crude rockets of the type regularly fired into Israel and Jewish settlements in Gaza -- almost invariably missing their targets.

The dead man, Hassan Hamlawi, 65, had been sitting outside his water-pipe shop when the missiles hit nearby. Blood stained the sidewalk amid the scattered plastic chairs in front of the store.

Crowds gathered at the scene, including Hamas supporters who brandished pieces of the charred white car and chanted "Revenge, revenge!"

Health Minister Kamal Sharafi said four of the wounded were in critical condition, including an 8-year-old girl.

Just minutes before the helicopter raid, an Israeli gunboat reportedly fired two shells toward northern Gaza City, hitting an empty plot of land. It was unclear if there were any casualties, and the Israeli army denied boats had opened fire.

The Gaza operation came hours after Israeli soldiers seized two wanted members of the Al Aqsa Martyrs' Brigades (search), a militant group loosely affiliated with Yasser Arafat's Fatah faction, from Raffidiyeh Hospital in Nablus. The two had been wounded in a gunbattle with Israeli soldiers on Friday.

Soldiers asked a nurse to lead them to the two fugitives -- one of them responsible for a homicide bombing that killed an Israeli in a supermarket Aug. 12. The troops confined nurses and doctors to a few rooms, knocked on the door of the intensive care unit, then broke it down.

Soldiers grabbed their medical files and wheeled the two men out on their hospital beds to waiting military ambulances, which took them to an Israeli military hospital.

Israel says it has no choice but to hunt down militants because Palestinian leaders have not dismantled the armed groups -- a key requirement of the peace plan.

Abbas has balked at confronting the militants and accused Israel of making his job more difficult.

"Israel has taken a dangerous decision to continue this assassination policy," Abbas security chief, Mohammed Dahlan, said in a statement. "They want there to be a civil war between the Palestinians."

He blamed Israeli reluctance to pull out of Palestinian areas for holding up the peace plan, which is supposed to lead to a Palestinian state by 2005.

The Bush administration on Tuesday denounced Arafat for appointing a new security chief, rather than allowing the consolidation of Palestinian security forces under Abbas, as the prime minister and the Americans want.

"Clearly, by blocking the consolidation ... Yasser Arafat undercuts the fight against terrorism and further undermines the hope of the Palestinian people for peace and a Palestinian state," White House spokeswoman Claire Buchan said Tuesday.

Abbas was seeking to shore up his position in the clash with Arafat over the security forces. Abbas scheduled a new round of talks with leaders of Palestinian factions in the Gaza Strip -- apparently excluding officials from Hamas and Islamic Jihad.

An aide said Abbas planned to appeal to lawmakers in the Palestinian parliament next week for a show of support. But there is growing speculation that his government might fail.

If the bickering continues, "then one of them will have to be pushed aside," said Kadoura Fares, a Palestinian legislator from the mainstream Fatah movement.

Arafat "is the elected leader of the Palestinian people so we cannot push him aside. But Abu Mazen [Abbas] is appointed and we can decide to find someone else to do his job, someone who can get along better," Fares said.