Israel's Cabinet on Wednesday approved an extension of a security barrier that would sweep around Jewish settlements deep in the West Bank but also have large gaps — for now — to address U.S. concerns.

One stretch would be built east of Ariel (search) — the second-largest settlement in the West Bank, with 18,000 residents — although it won't immediately be connected to the main security fence running further west, closer to Israel, said Zalman Shoval, an adviser to Prime Minister Ariel Sharon.

Israeli radio reports said similar barriers also would be erected east of several other settlements in the West Bank heartland, including Efrat, south of Bethlehem.

In other developments, Israeli commandos arrested Bassam Saadi, a senior leader of Islamic Jihad (search), in the West Bank refugee camp of Jenin. A witness said Saadi was hiding under a parked car when he was seized.

Later Wednesday, an Islamic Jihad member was killed and another critically wounded in an Israeli army raid in the West Bank refugee camp of Tulkarem, Palestinian security officials said. The Israeli military had no immediate comment.

Also, the incoming Palestinian prime minister, Ahmed Qureia, said he had reached agreement on the formation of a Cabinet and would present it to parliament on Sunday and Monday.

He would not discuss the size or composition of the new government, but Palestinian officials have said he was hoping to reduce the number of ministers from 24 to 12, in part because he was exasperated by wrangling over Cabinet seats.

The vote Wednesday by the Israeli Cabinet on the next segments of the security barrier was 18-4, with one abstention.

Israel says the barrier is necessary to keep out suicide attackers. Dozens of Israelis have been killed in more than 100 suicide attacks during three years of violence. Many bombers have simply walked across the unmarked line between Israel and the West Bank, blowing themselves up in Israeli cities.

Palestinian officials demand that the United States stop the barrier's construction, charging that Israel is grabbing land and unilaterally drawing a border that should be determined in peace talks.

"All these are procedures and actions that destroy all possibilities for peace and bringing about calm, be it settlements, the wall, or what is happening around Jerusalem," Qureia said.

The United States wants the barrier to run close to the Green Line (search), the frontier between Israel and the West Bank before the 1967 Mideast war.

The Bush administration has said it might deduct some of the construction cost for the barrier from $9 billion in U.S. loan guarantees to Israel. On Tuesday, however, the State Department said it had no immediate plans to cut the guarantees.

About one-fourth of the barrier already has been built in the northern West Bank. In some parts, it runs close to Israel. Elsewhere, however, the barrier dips farther into the West Bank, isolating several Palestinian villages and cutting residents off from their land.

The most contested issue in planning the next segment was whether the barrier would incorporate Ariel, cutting deep into areas the Palestinians claim for a future state.

The Cabinet approved a compromise backed by Prime Minister Ariel Sharon, who hopes to appease both the United States and his hardline constituents. Under the plan, the barrier would run east of Ariel but would not be connected for now to the main security fence running farther to the west, closer to Israel. The open sections would be patrolled by soldiers.

"Certainly it has to pass east of Ariel, but in a manner that will not antagonize the (Palestinian) population of the territories and will be in coordination with the agreements we have with the U.S. government," Vice Premier Ehud Olmert said before entering the Cabinet meeting.

Sharon initially opposed construction of the barrier because it would leave tens of thousands of Jewish settlers on the other side, but has relented under growing public pressure.

In the Gaza Strip on Wednesday, troops searching for weapon smuggling tunnels along the Egyptian border blew up one tunnel and destroyed several nearby buildings, the army and Palestinian witnesses said.

Palestinian security sources said that two of the 13 buildings destroyed were inhabited.

The army said that the buildings were used to hide weapons and that troops came under fire from Palestinian gunmen who also set off explosive devices.