Yasser Arafat (search) and leaders of his Fatah movement met Thursday to choose ministers in the new Palestinian government, and the Palestinian leader reported progress in truce talks with Islamic militant groups.

Israel has rebuffed Arafat's recent cease-fire offers, saying it will press ahead with its campaign against terror suspect until Palestinian forces begin dismantling the Hamas (search) and Islamic Jihad (search) groups.

In the Gaza Strip, Israel staged its first major incursion in several months, killing Jihad Abu Shwairah, 34, a leader of the Hamas military wing, in a shootout in the Nusseirat refugee camp early Thursday. Hundreds of soldiers were involved, an apparent signal to Hamas that Israel would not limit itself to airstrikes in Gaza.

Israel has killed 13 Hamas members and six bystanders in air attacks in Gaza since mid-August, when a Hamas homicide bombing killed 23 people on a Jerusalem bus.

In the West Bank town of Ramallah, the Fatah Central Committee (search) met Thursday to choose candidates for 15 of 23 seats in the new Cabinet, giving Arafat virtual control over the government of Prime Minister-designate Ahmed Qureia.

It was unclear whether the Fatah leaders would present Qureia with a slate of 15 ministers, or a list of candidates from which he would pick the ministers. The remaining eight ministers would represent other Palestinian groups or independents.

Originally, Qureia wanted to form an emergency Cabinet with about eight ministers, but Fatah and Arafat vetoed that.

Arafat's first prime minister, Mahmoud Abbas, resigned Sept. 6 after power struggles with the Palestinian leader, a deadlock with Israel on a U.S.-backed peace plan and the collapse of a unilateral truce called by militant groups in June. Arafat had appointed Abbas reluctantly and under international pressure to share power.

Qureia, presently the speaker of the Palestinian parliament, has a wider political base than Abbas and has said he does not intend to undercut Arafat.

Israeli Prime Minister Ariel Sharon met several times with Abbas, but Israeli officials have declared they will not deal with a Palestinian government that derives its authority from Arafat.

Israel charges that Arafat is tainted by terrorism. Last week, after two Hamas homicide bombers killed 15 Israelis in a single day, the Israeli security Cabinet said it would "remove" Arafat at an unspecified time, leaving open the possibility of expulsion or assassination. The decision set off international condemnation and a wave of renewed Palestinian support for Arafat.

In Arafat's compound, male supporters have pitched tents and plan to act as human shields. Ghassan Khatib, a Palestinian Cabinet minister, said that later Thursday, women and children would move into three large mobile homes just outside Arafat's office to strengthen their ranks.

Arafat, meanwhile, renewed his truce offer and said his envoys have made progress in talks with militant groups on halting attacks on Israelis.

In an interview published Thursday in the Israeli newspaper Yediot Ahronot, Arafat said Islamic Jihad is ready to declare a cease-fire and that Hamas is sending positive signals. "Up to now, the results are positive; there is a positive outlook from their perspective," Arafat said.

Arafat suggested he would take no action to dismantle the two groups, despite intensive U.S. and Israeli pressure. Asked if he would dismantle what Israel calls the "terrorist infrastructure," Arafat told Yediot: "This isn't an infrastructure, this is an opposition that you (Israel) built and you armed ... how should we disarm them? Don't your murderous acts lead to a retaliation?"

Qureia said once he has formed a new government, he will "call on the Israelis to agree to a mutual cease-fire" to clear the way for a reopening of negotiations and progress on the stalled "road map" peace plan.

Defense Minister Shaul Mofaz has said Israel will not agree to a cease-fire or let up in its fight against the militant groups if the Palestinians don't act against them, as is required by the U.S.-backed peace plan.

"Israel will not make any concessions before the Palestinian government proves with actions its intention to deal seriously and aggressively with the terrorist groups and to dismantle them," Mofaz said Wednesday in a speech to soldiers.