Updated

Despite President Bush's demand for new leadership, Yasser Arafat will run for re-election in January, a senior aide said Wednesday, hours after the Palestinians announced sweeping reforms for the their financial, judicial and security systems.

The Palestinian Authority, under fire as corrupt and linked to terrorism, insisted its plans came in response to concerns of its own people, not Bush's calls Monday for reforms and a new Palestinian leadership "not compromised by terror."

Israeli officials were skeptical, saying they want action not words.

Senior Palestinian official Saeb Erekat, who announced presidential and legislative elections would be held sometime between Jan. 10 and 20, indicated Israel's military presence in the West Bank could create problems in holding the vote. "Elections cannot be carried out with tanks on every corner," he said, but refused to elaborate on whether Israeli military action could delay the elections.

Israeli forces controlled most West Bank cities and towns, confining at least 700,000 Palestinians to their homes while carrying out arrests and searches. The duration of the operation, which began last week when back-to-back suicide bombings killed 26 Israelis, wasn't known, though Israeli officials have said it would be prolonged.

In the town of Jenin, Israeli forces shot and killed an 8-year-old boy, Palestinian doctors said. The Israeli military said it used non-lethal means to disperse a crowd of Palestinians violating a curfew and was investigating the incident.

For the second straight day Wednesday, heavy machine-gun fire pounded the fortress-like Palestinian government compound in the West Bank town of Hebron, and a bulldozer began knocking down walls. Israeli military officials said 150 Palestinians inside had surrendered since the army surrounded the fortress early Tuesday. Of the 40 to surrender Wednesday, 20 were top fugitives, they said without indicating how many more might be inside.

"We're here. They're there. We have the time," Hebron battalion commander Lt. Col. David Blumenfield told Israel Radio. "Slowly, slowly people are coming out."

Arafat has been widely expected to seek re-election, but neither he nor his aides had explicitly said he would until Palestinian Planning Minister Nabil Shaath said Arafat had told him he would run. Other senior Palestinian officials, Information Minister Yasser Abed Rabbo and Arafat aide Nabil Abu Rdeneh, said such talk was premature.

Asked if Arafat would run again, Shaath told The Associated Press: "Yes, absolutely."

But Abed Rabbo angrily disputed Shaath's remarks, saying: "This is absurd, absurd — talking about swimming before you have a pool or water. ... I never heard this from the president."

Palestinian Parliament Secretary Ahmed Abdel Rahman said the presidential and parliamentary elections likely would be Jan. 10 or 11. Erekat said municipal elections would be held in March.

Arafat already has one announced challenger in the presidential race — political scientist Abdel Sattar Qassem, 53. He told The Associated Press he rejects Bush's call for replacing Arafat, but that he expects to defeat the Palestinian leader.

"I'll focus on the internal issues, the corruption and mismanagement and looting public money, cronyism," said Qassem, who is known in the West Bank but isn't currently seen as a serious contender. Qassem does not recognize Israel and backs bombing and shooting attacks against Israeli civilians.

A poll by the Jerusalem Media and Communications Center — a Palestinian research group headed by Ghassan Khatib, who was named labor minister this month — asked 1,179 Palestinians whether they expected Arafat would be elected. The random sample found 47.5 percent said they expected Arafat to be re-elected, 37.8 percent said they did not and 14.7 percent gave no answer.

Still, when asked which Palestinian they trusted most, Arafat was identified by 25.1 percent of respondents — edging out the 24.5 percent who answered "I don't trust anyone." The most-trusted individual after Arafat was Sheik Ahmed Yassin, spiritual leader of the Hamas extremist organization, with 8.8 percent.

The face-to-face interviews were carried out from May 29-June 2. The margin of error was plus or minus 3 percentage points.

Corruption allegations have plagued the Palestinian Authority since its inception in 1994, and the reforms attempt to tighten management and improve auditing of public funds. After 21 months of violence, the Palestinian economy is in shambles and the Arafat government has largely ceased to function following repeated Israeli strikes in response to terror attacks.

Wednesday's announcement was the first detailed acknowledgment by the Palestinian leadership of shortcomings long pointed out by others. It noted, for example, the need for "competent" judges and to "renounce fanaticism" in the education system.

Palestinians said they intended to restructure the Interior Ministry, bringing the police and civil defense under its control and making it more active in enforcing court rulings.

"Many of you may think, `Are we submitting this or saying this in response to President Bush's speech?' We are saying this in response to Palestinian needs. ...We have been working on this reform for months," Erekat said.

Raanan Gissin, spokesman for Israeli Prime Minister Ariel Sharon, said Israel wants to see concrete evidence of a clampdown on terror before judging the effectiveness of reforms.

"This is how it will be tested — with action," he said. "In the meantime, all we have is words."

The need for elections and reforms had been raised recently by Palestinian officials, and some steps already taken.

In May, after a five-year delay, Arafat signed a law intended to form the basis of a Palestinian constitution. It ordered separation of powers between executive, legislative and judicial branches and guaranteed political and individual rights to Palestinian civilians. Earlier this month, Arafat shuffled his Cabinet, but the changes were criticized by many Palestinians as superficial.