Israel on Monday offered its first indication it was reassessing relations with the Palestinians after Yasser Arafat's death, suggesting it might coordinate a planned withdrawal from the Gaza Strip if the Palestinian Authority cracks down on militant groups.

Palestinian leaders reacted cautiously to remarks by Foreign Minister Silvan Shalom (search) and argued that Israel should "unconditionally" reopen peace talks under the U.S.-backed "road map" plan.

Prime Minister Ariel Sharon (search) had previously refused to negotiate the "unilateral disengagement plan" with Arafat, insisting that he was responsible for four years of fighting.

Arafat's death in a French hospital last week has opened up what many leaders believe is a crucial opportunity to revive the Middle East peace process by clearing the way for a more moderate leadership.

If leaders emerge who are willing to stem the violence, Israel is prepared to coordinate the plan to move troops and 8,800 Jewish settlers out of the Gaza Strip (search) and four West Bank settlements, Israeli officials said Monday. Such coordination is considered critical to avoid a chaotic transition.

"Israel has every interest that Gaza will be ruled in a responsible manner when redeployment takes place," Shalom told a conference of North American Jews in Cleveland. "If the new leadership on the Palestinian side acts to combat terror, then we will be able to consider coordinating aspects of the 'day after' with them."

Foreign Ministry spokesman Mark Regev confirmed Shalom's comments constituted a "new policy."

Israel's security establishment is currently examining ways to work with Palestinian security forces to hand them control of the Gaza Strip when Israel withdraws, senior Israeli officials said Monday on condition of anonymity. The recommendations will be discussed with Sharon in an upcoming meeting of senior officials on the matter, the officials said.

Israeli and Palestinian officials alike have expressed fears that an evacuation from Gaza that is not coordinated would bring chaos to the Gaza Strip, where militant groups have been vying for control in recent months.

In a sign of the uncertainty, shots were fired in Gaza on Sunday as Mahmoud Abbas (search), a leading candidate in Palestinian elections on Jan. 9, attended a gathering of people mourning Arafat. Two security guards were killed, and fears were raised that the violence could spiral.

A cease-fire by Palestinian militants is a central Israeli condition for the coordination of the Gaza pullout plan, a senior Israeli official said on condition of anonymity. Israel also expects the Palestinians to disarm the groups, stop anti-Israeli incitement and implement security and financial reforms, the official said.

In response, Palestinian Cabinet Minister Saeb Erekat (search) said he suspected the Israelis would put up too many conditions for coordinating the pullout.

"Israel should talk to us unconditionally," Erekat told The Associated Press. "This line of conditioning things ... has been the way government handles things."

The Palestinian Authority is required in the road map to combat militant groups.

The plan, backed by the United States, United Nations, the European Union and Russia, was formally accepted by the sides in 2003 but never got off the ground due to mutual accusations of violations.

Under the plan, Israel is slated to dismantle illegal settlement outposts and freeze settlement activity but has been reluctant to do so. The plan calls for an end to violence and the creation of a Palestinian state.

In another indication that Israel was pushing ahead with its implementation of its Gaza pullout plans, an Israeli parliamentary committee approved the allotment of almost $8 million to an authority overseeing the disengagement.

The decision cleared the way for the government to begin paying compensation to Jewish settlers who evacuate voluntarily.

The plan outlines advance payments in compensation as an incentive to settlers to lessen what settler leaders warn will be mass demonstrations to prevent the dismantling of the settlements.