Palestinian leader Yasser Arafat (search) on Wednesday dismissed as meaningless the Israeli premier's hints of evacuating some Jewish settlements, while a meeting of Israeli and Palestinian foreign ministers raised hopes for renewed peace talks.

After seeing Egyptian President Hosni Mubarak (search) in Geneva, Israeli Foreign Minister Silvan Shalom (search) traveled to Rome for talks with his Palestinian counterpart, Nabil Shaath, the highest-level meeting between the two sides since Palestinian Prime Minister Ahmed Qureia (search) took office two months ago.

The diplomatic flurry reflected renewed efforts toward peace negotiations, with Israeli Prime Minister Ariel Sharon considering as yet undefined unilateral moves if talks on the U.S.-backed "road map" peace plan fail. The plan starts with a cease-fire and leads to a Palestinian state in 2005.

Violence continued early Thursday, with Israeli troops battling Palestinians in a Gaza Strip refugee camp on the Egyptian border. Hospital officials said two Palestinians were killed and seven wounded.

Palestinians said Israeli forces entered the Rafah refugee camp before daybreak and surrounded the house of a Hamas militant. Palestinians opened fire on the troops and threw hand grenades from the roof of the building, and the Israelis sent attack helicopters in as reinforcements, the Palestinians said.

Israeli military officials said the purpose of the mission was to arrest a wanted Palestinian, and fire was exchanged at the scene.

Two of the wounded, including a 12 year-old boy, were in critical condition, Rafah hospital officials said.

The camp is a frequent scene of battles. Israeli soldiers enter often to search for tunnels Israel says the Palestinians use to smuggle arms in under the Egyptian border. The frontier divides the refugee camp between the two countries.

Efforts continued toward arranging a first meeting between Qureia and Sharon, though the failure of contacts in Cairo among Palestinian factions last week appeared to delay the summit plans. Qureia and Egyptian officials tried unsuccessfully to secure a declaration from the militants that they would stop attacks against Israelis, clearing the way for a demand that Israel reciprocate.

The Israeli Foreign Ministry said Shalom told Shaath that Israeli is interested in renewing peace negotiations "without preconditions." At a joint news conference, Shaath called for implementation of the road map, "the only way to achieve the peace, a comprehensive and just peace."

Earlier, after meeting Mubarak, a key mediator, Shalom said, "My name is peace and we believe in peace," referring to the English translation of his last name.

Palestinians charge that Israeli military operations and restrictions are responsible for the relentless violence.

Shalom told Army Radio that Egypt expressed interest in "warming relations" with Israel, and Mubarak was committed in principle to returning the Egyptian ambassador to Israel. He was recalled three years ago when Israeli-Palestinian peace talks collapsed and fighting erupted.

With talks still frozen, Arafat scoffed at Sharon's hints that as part of unilateral moves, he might remove Jewish settlements.

"It's all a show," Arafat told reporters outside his office in the West Bank town of Ramallah, where he has been trapped by Israeli troops and threats for two years. Addressing a parliamentary committee on Tuesday, Sharon was quoted as saying he would move some settlements as part of unilateral measures to reduce tensions in the West Bank and Gaza Strip of "road map" negotiations fail.

However, Arafat said Sharon's actions spoke louder than his words. "The truth is the daily construction of settlements, and the daily construction of the fence," he said, referring to a security barrier Israel is building, ostensibly to keep Palestinian attackers out. However, the planned route cuts deep into the West Bank, territory the Palestinians claim for a state.

Palestinians say the settlements are illegal encroachments on their land and demand that all of them be removed.

Sharon has refused to specify his plan, but media reports say it includes the removal of all 16 Jewish settlements in Gaza as well as the possible evacuation of some West Bank settlements and the annexation of others.

Israel would then consider turning the West Bank barrier into a permanent border with the Palestinians, according to the reports.

If Israel is forced to take unilateral moves, "the Palestinians will be very, very unhappy, because they will get a lot less than what they could get in the long run" through negotiations, lawmaker Yuval Steinitz told Israel Radio Wednesday.

Palestinian officials have condemned the prospect of unilateral moves by Israel, saying they would never lead to peace, and urged Israel to focus instead on returning to the negotiating table to work out a peace deal.

Nations donating money to the Palestinian Authority, meeting in the Italian capital, pressed Israelis and Palestinians to work harder to ease tensions. The donors were considering reducing or stopping their funding if progress is not made.