The government is in compensation talks with Jewish settlers (search) to leave their homes, a lawyer said Wednesday, as Israel moved forward with its plan to dismantle settlements and withdraw its army from the Gaza Strip (search) next year.

Meanwhile, Palestinians were waiting to see if Yasser Arafat (search) will live up to his bargain Tuesday giving his prime minister more authority, a deal that ended an immediate leadership crisis between the two men.

Embracing and smiling, the Palestinian leader and Prime Minister Ahmed Qureia (search) patched up their differences at a meeting in Arafat's offices. Qureia withdrew his 10-day-old resignation letter and prepared to take charge of part of the security forces formerly under Arafat's control.

The reconciliation was meant to calm demonstrations, kidnappings and the seizure or sacking of police stations and Palestinian Authority (search) buildings that had thrown the Gaza Strip into turmoil.

But the promises Arafat made to defuse the crisis were vague, and left Palestinians wondering whether real power would change hands.

"Today was a significant step in a long road," said Saeb Erekat, a Cabinet minister and peace negotiator. "Our people and the world will judge us in accordance with our deeds and not our words."

In the Gaza Strip early Wednesday, Israeli tanks and bulldozers cut off the coastal road and leveled surrounding agricultural fields and poultry farms, under heavy machine gun fire to keep residents away, Palestinian witnesses and officials said.

There were no reports of casualties.

The army said it was conducting "a pinpoint operation to destroy terrorist infrastructure" in the area, which is close to the Jewish settlement of Nitzarim and about one mile south of Gaza City.

"Why are they razing the farms here?" said Akram Shmalkh, 40, a farmer of grapes and figs. "Some of these trees are older than the drivers of the bulldozers."

Israeli Justice Ministry officials have promised the settlers that advance compensation payments could be paid within two months for those who voluntarily leave the Gaza Strip, said Joseph Tamir, representing about 90 families.

Many of the 8,000 Gaza settlers say they will resist the plan announced by Prime Minister Ariel Sharon (search) to leave Gaza by September 2005, and the army is bracing to evacuate them by force.

Israel captured the Gaza Strip and West Bank in the 1967 Mideast war.

Tamir said the officials would not specify the size of the advances, nor promise that the funds would be large enough to allow settlers to purchase homes in other locations.

"They were playing their cards very close to the chest," Tamir said. "But an advance that does not reflect the ability to buy a new home is not realistic."

The agreement by Arafat and the Palestinian government was greeted with skepticism by everyone from world statesmen to Palestinians on the street.

Secretary of State Colin Powell called Arafat "the master of the ambiguous statement or the statement with the yo-yo string on it. It gets pulled back.

"There have been different statements almost on a daily basis, and I'll listen to and track and watch these statements but what we are looking for is action, not statements," Powell told reporters on a trip to Europe and the Middle East.

Israel's military chief of staff, Lt. Gen. Moshe Yaalon, said Arafat is coming under increasing pressure from Palestinians who want genuine reform. "For the time being he has the upper hand, but this is a struggle that is still going on."

Egypt, which has pressed Arafat to surrender some powers and overhaul the security forces, welcomed Qureia's withdrawal of his resignation.

"This is something good. It is a useful development," Foreign Minister Ahmed Aboul Gheit said.

In Gaza, many people saw the unrest that precipitated Qureia's resignation as a power struggle between Arafat and younger leaders in his Fatah movement.

"As a citizen, all that I am looking for is security and stability," said Yousef Saeed, 56, sitting outside his electrical shop smoking a water pipe.

"We have to focus our attention on how to protect our people from the (Israeli) occupation and how to secure our cities and towns, not to have a power struggle," he said.

Arafat and Qureia agreed to enforce power structures already in place that Arafat until now has blocked.

"There will be actions on the ground," said Qureia, announcing that he had acceded to Arafat's request to rescind his resignation. "This is a new step toward reform and imposing the rule of law."

Last week, in an initial move to silence critics, Arafat agreed to consolidate his security forces into three branches, and on Tuesday he gave Qureia control over one of them.

Under the agreement, Qureia will have authority over the internal security forces — the police, civil defense and preventive security — while Arafat will control the Palestinian intelligence service and armed forces, Palestinian officials said.

Officials said Arafat also gave ground on corruption, agreeing to order the attorney general to open investigations against tainted officials.

But the accord failed to resolve the controversy over Arafat's appointment of his unpopular cousin Moussa Arafat as chief of security in Gaza. Moussa Arafat is widely accused of human rights violations and suspected of weapons and drugs smuggling.