Israel on Wednesday froze the planned handover of West Bank (search) towns to the Palestinians, accusing Palestinian security forces of failing to honor commitments to disarm militants in areas already under their control.

In the West Bank, two Palestinian youths were shot dead by Israeli soldiers. The developments strained the already tense cease-fire.

Palestinian officials called the decision to stop the handover of towns "unfortunate" and said they had struck a deal to collect militants' weapons, despite a top commander's announcement Wednesday that he has no plans to disarm the gunmen by force.

Israeli military officials said about 300 Palestinians threw rocks and iron bars at soldiers, who fired warning shots in the air before shooting at the Palestinians.

The Palestinian Authority (search) issued a statement calling the killings a violation of the cease-fire. The truce, declared Feb. 8, has considerably reduced violence, but isolated incidents continue.

Under the cease-fire agreement, Israel pledged to pull its forces out of five West Bank towns, while the Palestinians promised to disarm militants. Israel has pulled out of only two towns, Jericho and Tulkarem, while holding back from leaving Qalqiliya, Bethlehem and Ramallah (search).

Israel has repeatedly said it is not moving forward because the Palestinians have failed to crack down on gunmen in these areas. During Wednesday's meeting of the Security Cabinet, a group of senior government ministers, Mofaz confirmed he has frozen the process, participants said.

Mofaz decided on the freeze "because the thing most central to us — that terror activity will not be launched from any town we hand over — was agreed to but not implemented" by the Palestinians, Interior Minister Ophir Pines-Paz told Israel TV.

Israel remains committed to carrying out the handovers in the future, Pines-Paz added.

Senior Palestinian negotiator Saeb Erekat called the Israeli move "a very unfortunate approach and decision." He said the Palestinians have been in touch with militants wanted by Israel and received pledges for them to halt violence.

Israel and the United States have repeatedly demanded that the Palestinian Authority dismantle the armed groups. Those calls increased after the Palestinians released a Hamas militant this week, just hours after arresting him with a rocket launcher and other weapons.

"The Palestinians cannot continue the process of a 'revolving door,' making apparent arrests and releasing them," said Raanan Gissin, a spokesman for Israeli Prime Minister Ariel Sharon. "No one is going to take seriously the Palestinian police or legal authorities if this is going to be their practice."

Palestinian leader Mahmoud Abbas has refused to confront the militants, opting instead for persuasion and compromise.

In Gaza, the new Palestinian security chief in charge of reining in militants said he had no plans to disarm them, though he asked the armed groups not to flaunt their weapons.

"The Palestinian factions know that we have no plan to disarm the resistance and to take their weapons," Abu Shbak told reporters. "We are not going to have any confrontation with anyone."

But a senior commander in Tulkarem said on condition of anonymity that all of the militants in the town agreed to surrender their weapons within 48 hours in exchange for jobs in the Palestinian police force or other government agencies.

A collapse in the cease-fire would complicate Israeli plans to withdraw from the Gaza Strip and four small northern West Bank settlements this summer. Israel already is preparing for the possibility of violence from Jewish settlers and wants to avoid fighting with the Palestinians.

Jewish settlers have overwhelmingly refused to cooperate with the plan, though they have said their resistance will be nonviolent. But with the withdrawal only three months away, the government appears to be growing impatient with the settlers.

On Wednesday, government officials confirmed they had issued an ultimatum to the Gaza settlers: Accept a plan by next week to leave quietly and move en masse to a desirable coastal area in Israel, or the offer could be withdrawn.

A negotiator for the settlers said on condition of anonymity that the settlers would not comply with the ultimatum.