The Palestinians have rejected a U.S. proposal to have their parliament choose a prime minister who could balance the power of Yasser Arafat -- and an official said Friday that sharp disagreements with Washington could jeopardize Palestinian elections planned for January.

Meanwhile, in the Gaza Strip, Israeli troops on Friday killed two Palestinians trying to infiltrate a Jewish settlement, underscoring the fragility of a plan to reduce tensions in the area.

Washington has been seeking to sideline Arafat -- whom it accuses of stoking violence that has torpedoed the Mideast peace process -- while calling for elections as part of efforts to persuade the Palestinian Authority to undertake sweeping reforms.

But Arafat, who remains popular among Palestinians, would likely be re-elected in an open vote.

As an alternative to the 73-year-old leader, Secretary of State Colin Powell and National Security Adviser Condoleezza Rice -- in a meeting in Washington with Palestinian officials two weeks ago -- proposed that the Palestinian parliament choose a prime minister, said Palestinian Cabinet minister Saeb Erekat.

In a report Friday to an international task force in Paris on Palestinian reform, the Palestinian Authority said it would not agree to changes in the electoral system used by Palestinians in 1996 to confirm Arafat as leader.

"We told them (the United States) that this is not your business," Erekat said. "We were shocked during the discussions that the American side is speaking about changing the law of elections."

The United States, he said, is trying to delay the balloting.

A U.S. official contacted Friday refused to confirm the disagreements over the election process.

Raanan Gissin, adviser to Israeli Prime Minister Ariel Sharon, confirmed the United States proposed a parliament-chosen prime minister as a way of sidestepping Arafat.

"They (the Palestinians) rejected that," Gissin said. "The election as proposed in its current state will only ensure that the same people and the same reign of terror will be re-established."

In the Gaza strip on Friday, three armed Palestinians disguised as Israeli soldiers tried to infiltrate a Jewish settlement, and troops killed two of the attackers, the army said.

The Al Aqsa Martyr's Brigade, a militia linked to Arafat's Fatah movement, claimed responsibility for the failed attack.

The violence overshadowed an agreement to turn security in Gaza over to Palestinians as a trial for easing harsh Israeli restrictions in the West Bank imposed after a spate of suicide bombings in Israel.

Under the agreement, Israel turned over security duties to Palestinian forces in the West Bank town of Bethlehem this week and was to take similar measures in Gaza. The Israelis say if the Palestinians can stop attacks from those two places, they will ease restrictions in other parts of the West Bank, where Israeli troops continue to control six of the eight main Palestinian population centers.

In a poll published Friday by the daily Yediot Ahronot newspaper, 67 percent of Israelis surveyed said they felt their country had suffered as a result of the peace process that began with the signing of an interim accord with the Palestinians in 1993.

Answering another poll question, 54 percent said they would now be willing to accept fewer concessions for the sake of a peace deal than they were before the latest Palestinian uprising erupted two years ago. The poll randomly surveyed 500 Israeli adults this week and reported a 4.5 percentage point error margin.