A Palestinian militant wanted in a Tel Aviv (search) suicide bombing and an Israeli soldier died in a West Bank shootout Monday, part of a marked increase in tensions testing a three-month-old truce. It was the first Israeli military death since the cease-fire began.

Israeli and Palestinian leaders traded accusations over the gunbattle in the village of Seideh (search), with each saying the other side has persistently violated the cease-fire declared in February. However, neither side threatened to abandon the truce.

In Gaza City (search), the Palestinian Authority launched an anti-corruption campaign by razing three seaside houses under construction by senior security officers who had seized public land for private use.

Neighbors welcomed the demolition. "I hope that all the violators will be punished," said one, Hassan Abdel Khaleq (search). "When I see all the people obeying the law, no one will violate it."

Palestinian leader Mahmoud Abbas was elected, in part, on a promise to reform the Palestinians' corruption-riddled government and security services.

Also Monday, Natan Sharansky, cited by President Bush as an inspiration for promoting democracy, resigned from the Israeli Cabinet to protest the planned withdrawal from the Gaza Strip and parts of the West Bank this summer. Sharansky said Israel should not make concessions to the Palestinians until they prove they can govern themselves.

The Cabinet, meanwhile, approved upgrading the 7,000-student college in the West Bank settlement of Ariel to university status over opposition by ministers from the moderate Labor Party (search), the main coalition partner of Premier Ariel Sharon (search).

"This is in keeping with the government's aim of strengthening settlement blocs," Sharon told ministers, according to a statement released by his office.

Sharon has said he wants Israel to retain large West Bank settlements as part of any peace deal with the Palestinians. The Palestinians object, claiming all of the West Bank and Gaza for a future state, and want to see all settlements removed.

The violent West Bank incident began when Israeli troops raided Seideh before dawn and imposed a curfew. A shootout erupted, leaving a militant and a soldier dead, the Israeli army said.

The militant was identified as Shafiq Abdul Ghani, 34, an activist in the militant Islamic Jihad group. Abdul Ghani had been arrested by the Palestinian security services as a suspect in a February suicide bombing in a Tel Aviv night club that killed five Israelis, but he fled from a Palestinian prison last month.

Israeli media identified the soldier as Dan Talasnikov, 21.

Seideh was one of several villages that Palestinian authorities wanted Israel to withdraw from when Israeli forces handed over the nearby town of Tulkarem to Palestinian security forces in March. Israel refused, saying the villages were full of militants, including those behind the February suicide bombing.

On Sunday, Israeli troops briefly raided Tulkarem, arresting a suspected Islamic Jihad member the army said was preparing to carry out a suicide bombing.

Senior Palestinian negotiator Saeb Erekat said the latest Israeli operations jeopardized the truce, which has significantly reduced the number of casualties on both sides.

"The cease-fire can't be held by one side," Erekat said. "The continuation of Israeli incursions, assassinations and arrests is seriously threatening the ... understandings."

Israeli Vice Premier Ehud Olmert said the violence proved how fragile the truce was, adding that Israel did not plan to end its raids against militants unless the Palestinians themselves took action against them.

"Israel can't stop its efforts to protect its citizens and to block any effort by Palestinians to continue terrorist actions," he said. "I hope that the Palestinian Authority will take a more active role in enforcing the cease-fire so there will be no need for further intervention by Israeli soldiers."

Violence has slowly increased in recent weeks, though it is still far below the levels it was at during the height of the fighting over the past 4 1/2 years. Israelis have carried out several arrest raids, and Palestinian militants have fired salvos of mortar shells and rockets into Gaza Strip settlements.