Dozens of homeless Palestinians led by gunmen occupied a government office in this Gaza refugee camp Thursday, forcing officials to leave and lashing out at the Palestinian Authority (search).

The demonstration came just after Israeli troops raided the camp, destroying buildings as they searched for arms-smuggling tunnels and weapons.

The four-hour standoff, which ended after Yasser Arafat (search ) intervened, was the latest blow to the Palestinian leader's prestige and part of the growing chaos in Gaza ahead of Israel's planned withdrawal from the territory next year.

Prime Minister Ariel Sharon (search ) says continued Israeli control of Gaza, where 8,000 Jewish settlers live among 1.3 million Palestinians, is unsustainable. Israel captured Gaza in the 1967 Mideast war.

Also, Vice Premier Ehud Olmert said Israel would have to remove more than the four West Bank settlements listed for evacuation under Sharon's "unilateral disengagement" plan.

It was one of the clearest indications yet from an Israeli leader that the disengagement might be only the first phase of an eventual Israeli pullback from most of the West Bank to make room for a Palestinian state.

Olmert said the additional settlements would have to go because of international pressure and to preserve Israel's Jewish identity. He did not say how many settlements would be removed or when they would be removed.

Sharon has said one goal of his plan is to solidify Israel's grip on main West Bank settlement blocs, most of them in the Jerusalem area, implying that settlements outside those blocs are expendable.

Speaking at a party meeting Thursday, Sharon said Israel must carry out the disengagement "to ensure that Israel will not be isolated in the world."

Since Sharon announced the withdrawal plan earlier this year, unrest has surged in Gaza as rival Palestinian factions maneuver for power.

Palestinian security forces, weakened from four years of conflict with Israel, are largely ineffective. Violent gangs operate with impunity, and militant groups accuse Palestinian leaders of corruption and ineffectiveness.

During Thursday's standoff, several dozen demonstrators, including about 10 gunmen, marched into the governor's office in the Rafah refugee camp and evicted local officials.

Some gunmen wore uniforms of the Al Aqsa Martyrs' Brigades (search ), a violent group with loose ties to Arafat's Fatah movement.

The demonstrators accused Palestinian officials of doing nothing to ease their plight after their homes were damaged or destroyed by Israeli troops.

"Our houses have been demolished, we have no homes, no beds, no clothes — and nobody from the Palestinian Authority comes to see us," said Yusef Shaat, one of the protesters.

Izzat Abu Al-Khair, director of the governor's office, said he reached a settlement with the protesters after Arafat authorized him to meet them. The protesters then left the building and the staff returned, he said.

Under the deal, the Palestinian Authority agreed to provide clothes and kitchen utensils to the displaced people, repair damaged homes and rent housing for those whose homes were destroyed, Abu Al-Khair said.

During four years of conflict, the army has razed hundreds of buildings in Rafah, which is on the Egyptian border, saying they are used for cover by militants and weapons smugglers. Israeli forces have found many weapons-smuggling tunnels originating under Rafah buildings.

Rafah residents said eight homes were destroyed in the latest army raid. An Israeli soldier was shot in the head and critically wounded by a Palestinian sniper during the Rafah operation, the army said.

Amira Ayyash, a 51-year-old mother of six children, said she fled to a relative's house overnight when she heard Israeli bulldozers near her home.

"Today we came to see what happened to our house, and we found it in rubble," she said as her children cried.

Meanwhile, a group of Palestinians sued two local cement companies Thursday, charging they have been supplying Israel with the material to build parts of its contentious West Bank separation barrier.

A Palestinian commission of inquiry last month found that the Al Tarifi and Barake companies had diverted thousands of tons of cement destined for Palestinian houses to Israel, most of it going to the barrier. Investigators said the firms had schemed to make quick money from Israeli contractors.