A local Hamas (search) leader indicated Monday the militant group would not attack Israelis during the Palestinian presidential campaign and would consider a formal truce with Israel in the latest signs of hope for renewed peace efforts in the region.

However, just hours after Sheik Hassan Yousef (search) spoke, two Hamas militants were killed while trying to attack an Israeli military outpost in Gaza, and another Hamas official said there was no such truce.

Meanwhile, Israeli Prime Minister Ariel Sharon (search) and a crucial coalition partner were locked in an angry budget standoff that could bring down the government and delay its planned withdrawal from the Gaza Strip.

There has been a sharp drop in violence since Yasser Arafat's death Nov. 11, with Palestinian militants cutting down on attacks and the Israeli army scaling back raids before the Jan. 9 election for Arafat's replacement.

"In the current situation, many political and militant groups have halted their attacks. They are waiting and exploring the new era," said Yousef, the top Hamas leader in the West Bank who recently was released from an Israeli prison after serving 28 months.

Hamas, which has killed hundreds of Israelis in attacks during the last four years, opposes the existence of the Jewish state.

Though Yousef is leader in the West Bank, the top leadership of Hamas, which is based in Lebanon, denied any halt to violence, citing a raid on an Israeli army base in Gaza on Monday.

In that attack, two Hamas militants approached the base near the settlement of Netzarim. Video released by Hamas showed soldiers shooting one attacker, whose body then exploded. The second attacker detonated explosives and threw hand grenades for several minutes before a tank killed him. There were no Israeli casualties.

"We do not see any contradiction between continuing the attacks and the resistance and arranging the Palestinian house," said Osama Hamdan, the group's spokesman in Beirut.

Interim Palestinian leader Mahmoud Abbas has been critical of the violent aspect of the uprising and has met with militant groups in hopes of reaching a cease-fire.

The Al Aqsa Martyrs' Brigades, a violent group with ties to Abbas' Fatah movement, said Monday it was considering such a truce.

"We are watching the changes after Arafat's death," said Ala'a Sanakra, a group leader in the West Bank city of Nablus. "If there is a real truce on the table, we will agree to it."

Sharon has pledged a number of gestures to Abbas — who is the top candidate in the election — saying he is prepared to coordinate his planned Gaza pullout next year with the Palestinians.

But a fight with one of his top coalition partners threatened Sharon's grasp on power, and with it the withdrawal.

In an effort to expand his minority 55-member coalition in the 120-member Knesset, Sharon has invited two ultra-Orthodox parties to join, promising to transfer $98 million to their interests in exchange for their vote on the 2005 budget.

That enraged the fiercely secular Shinui Party, which threatened to bolt the government with its 14 seats. The opposition Labor Party, which has provided Sharon a parliamentary safety net in support of the withdrawal plan, said it will not vote for the budget because of cuts in social spending.

If the budget does not pass by March 31, Sharon's government would automatically fall, but Sharon refused to back down.

"We will not allow this or that party to impose its position," Sharon told Likud lawmakers before the government survived three no-confidence votes Monday.

The collapse of the government could seriously damage hopes for Sharon's "disengagement" plan, which includes a withdrawal from Gaza and four West Bank settlements and the completion of a West Bank barrier to separate Israelis from Palestinians.

Officials said Monday that Defense Minister Shaul Mofaz approved a revised barrier route that an Israeli newspaper said would leave more land on the Palestinian side. The new plan will be brought to the Cabinet for approval, security officials said on condition of anonymity.

The new route cuts the amount of West Bank land on the Israeli side from 225,000 acres to 100,000 acres, the Haaretz daily newspaper reported.

The Israeli Supreme Court ordered the route changed, citing unnecessary hardship caused to Palestinians.

Meanwhile, Israeli Foreign Minister Silvan Shalom pledged on Monday to help ensure a high turnout and violence-free elections when Palestinians vote in January.

Speaking to reporters at the start of a two-day meeting of foreign ministers from the European Union, Israel and its Arab neighbors, Shalom said, "We would like to do everything possible to give the Palestinians a chance to have their own elections. Free access to voters, to polling booths ... we will remove any kind of obstacle the Palestinians may face."