Terror group payment 'changed US policy'

President George Bush called for Yasser Arafat's removal from office after US intelligence discovered that the Palestinian leader had authorised a $20,000 payment to a terrorist group claiming responsibility for the latest Jerusalem suicide attack.

The information caused Mr Bush to revise his priorities in the Middle East, officials say. It led to a postponement of Secretary of State Colin Powell's planned trip to the region and of plans for a peace conference, urged on Washington by the European Union.

Intelligence was obtained a week ago that Mr Arafat was continuing to bankroll Al Aqsa Martyrs Brigades which claimed responsibility for a bomb explosion that killed six people.

"That was the key," a US official told the New York Times. "It sealed it." It gave hardliners in the Bush administration the upper hand, officials say, particularly the anti-Arafat faction, including Vice President Dick Cheney and Defence Secretary Donald Rumsfeld, overshadowing "doves" like Mr Powell. The White House is now preparing "a new round of consultations" before deciding on the next step, the New York Times reports.

Mr Powell says he has no immediate plans to go to the Middle East or for a planned foreign ministers' conference to discuss peace proposals. "I need to take some time now to assess the situation, to see if we can get things stabilised," he said.

Arab leaders are pressing Washington for speedier action in persuading Israel to pull back its forces from the West Bank and Gaza, so that a timetable for reforms of Palestinian security can start. But a US official said: "Quite frankly, we will be feeling our way over the next days and weeks. We don't have a stepby-step blueprint for now. It's a fluid situation."

In his speech, Mr Bush pledged his support for the creation of a Palestinian state but only when the Palestinians have elected new leaders, "not compromised by terror". Plans for an international Middle East conference were apparently sidelined indefinitely.

One plan now under consideration at the White House is for the Europeans to assist in building legal institutions for the Palestinian state, while Japan would help guide economic development. The US, with the help of Egypt and Jordan, would take the lead in making new security arrangements and ending violence and murder.

Washington is not making too much of the statement issued by EU leaders in Seville over the weekend pressing for an immediate international conference and calling for Israel to cease military operations.

Officials in Washington suggest the EU did not have adequate information about what is really going on in the Palestinian leadership.