Israel and the Palestinians have agreed on the logistics of the upcoming election to replace Yasser Arafat (search), a senior Palestinian official said Wednesday, but he denied reports that the two sides had worked out a broader deal to end their decades-old conflict.

The Palestinians had demanded that Israel cease military operations and withdraw from Palestinian cities and towns to allow candidates to campaign for the Jan. 9 presidential elections to replace Arafat, who died last month.

The Palestinians also insisted that residents of east Jerusalem be allowed to vote, a demand that Israel has resisted. The Palestinians want east Jerusalem, annexed by Israel after the 1967 Mideast war, to be their future capital.

The two sides have agreed to hold the elections using the same procedures that were in place for the last Palestinian elections, Palestinian Cabinet minister Saeb Erekat said.

"We received assurances that the elections of the West Bank, east Jerusalem and Gaza Strip will take place as they did in 1996," Erekat said. "I am satisfied with that. I am happy."

During those elections, residents of east Jerusalem were allowed to vote at five polling stations in the region, but their ballots were officially classified as absentee ballots.

A senior Israeli official confirmed that the two sides had reached an agreement in principle, based on the 1996 election.

"That would be the model. There would be adjustments and changes, but that would be the model," the official said on condition of anonymity.

The agreement comes amid signs of warming ties following Arafat's death. Israeli Prime Minister Ariel Sharon (search) has said he would like to meet with top Palestinian officials after the election and has offered to coordinate his planned withdrawal from Gaza with them.

Israeli lawmakers said Wednesday that two small Gaza settlements — Nissanit and Elei Sinai — have asked to be relocated as whole communities into Israel. A third settlement, Prat Sadeh, has asked to be moved as a whole into the West Bank, Army Radio reported.

Interim Palestinian leader Mahmoud Abbas (search), a leading candidate to replace Arafat, has been negotiating with militant groups to end attacks on Israel and has pressured Palestinian media to stop disseminating anti-Israel propaganda.

One of the 10 Palestinian presidential candidates, meanwhile, dropped out of the race Wednesday. Hassan Khreishe, the acting speaker of the Palestinian Legislative Council, said Israeli restrictions had hampered his campaign. Recent polls showed Khreishe badly trailing.

On Tuesday, the official Egyptian Middle East News Agency MENA reported that Egypt had brokered terms of an Israel-Palestinian truce and principles of an accord for ending the overall Israeli-Palestinian conflict.

MENA said Cairo would call for a July peace conference in Washington to include all parties to the agreement: Israel, the Palestinians, the United States and the European Union.

Erekat said the Egyptians were working to support a Palestinian truce, to help train the Palestinian security forces and to revive stalled peace talks, but he said the report of an agreement on broad principles for ending the conflict was premature.

"What's going on is that the British suggested an international conference, and we support this, but to say we reached a final conclusion is premature," he said.

Egypt has said it would take responsibility for security on the Gaza-Egypt border after an Israeli pullout scheduled for next year. Israel wants Egypt to beef up its security presence on the border to prevent weapons smuggling into Gaza.

Egyptian President Hosni Mubarak received a warm welcome during his tour of Gulf nations — part of a bid to revive the Israeli-Palestinian peace process.

Mubarak did not speak to reporters in Kuwait, but the Egyptian Ambassador Abdul-Rahim Shalabi said the president discussed "the possibility of resuming (Israeli-Palestinian) peace talks and the importance of supporting the new Palestinian leadership." Shalabi would not comment on the MENA report.

Meanwhile, Palestinians fired an anti-tank missile Wednesday into the Jewish settlement of Nissanit in Gaza, causing no damage or injuries, the army said. Israel Army Radio said the missile fell near a nursery school.

Palestinian militants frequently fire rockets and mortar shells at settlements and army bases, but they rarely cause casualties.

On Tuesday, Hamas militants broke three weeks of relative calm in Gaza, setting off a bomb that killed a soldier and triggered Israeli retaliation that killed four Palestinian militants.

Hamas claimed its men dug a tunnel to booby-trap a chicken coop, then lured troops to the area with the help of a double agent and exploded the bomb, killing an Israeli handler and his bomb-sniffing dog.

Israel TV reported that the dog set off the bomb, killing the soldier and two Palestinians guarding the entrance to the tunnel. The report said the tunnel was dug in the direction of the nearby Israeli border fence and appeared designed to allow Palestinian attackers to sneak into Israel.

Tuesday's bombing was the first fatal Palestinian attack in Gaza since Arafat's death on Nov. 11.

The bombing took place next to the Karni crossing point into Israel, the only place where food and produce can enter or exit the crowded coastal strip. Soldiers closed the gates after the bombing, and the military would not say when the crossing will be reopened.