Two dead in new Israeli attacks

Missiles exploded within 20 metres of Yasser Arafat today as Israel intensified its response to the weekend's suicide bombings.

Three shells fired by helicopter gunships hit a security post next to the Palestinian leader's office in Ramallah where he was working. He stayed at his desk and escaped unhurt as Palestinian security officials fled the compound in panic, witnesses said.

"It's crazy, really crazy," said Sobhi al-Zobaidi, a local resident. "People were running all over, terrified, and there were police and security everywhere. It's a war."

Israeli premier Ariel Sharon had hours earlier declared "war on terror" and the latest attack increased speculation that his government is now targeting Arafat personally - denied by Israel - or at the very least trying to undermine his Palestinian Authority.

Throughout the morning Israeli planes and helicopter gunships blasted towns in the West Bank and Gaza Strip.

Thick smoke billowed over Gaza City. Witnesses in Khan Younis refugee camp said missiles hit the Palestinian Authority's security headquarters, sending hundreds of school children running for cover. Doctors said a 17-year-old student and a 20-year-old man were killed and more than 100 injured. "Sharon has declared war on us. God help us," said 13-year-old Ayman Abdul Jawad, running in the street with blood on his head.

In response to the attacks Mr Arafat accused Mr Sharon of not wanting the peace process to succeed. Senior Palestinian negotiator Saeb Erekat said: "Sharon's government is exercising terror. They're destroying the peace process and now they're destroying the Palestinian Authority. The world has to stop this Sharon madness immediately."

Palestinian security officials said Israeli armoured vehicles and bulldozers entered Gaza Airport early today, tearing up the runway and cutting an access road to the airport.

Mr Sharon's spokesman, Raanan Gissin, said Israel was "making sure no one can take off from this airport". He said the aim was "to put the pressure on Mr Arafat to comply" with Israeli demands to stop militants from attacking Israelis. "If he doesn't bring these people to justice, we'll do justice to them," Mr Gissin said.

Tanks were ordered into the West Bank and Gaza Strip before first light today to occupy towns and destroy the Palestinian airport. Troops and tanks earlier took up positions in the city of Nablus as well as Ramallah, where they stopped a few hundred metres short of the Palestinian Authority's HQ. Israeli forces also shot dead a 26-year-old member of Mr Arafat's Fatah group during an exchange of fire in Nablus.

The raids seemed designed to humiliate the Palestinian leader, coming swiftly after Mr Sharon had sent his airforce to destroy three of Mr Arafat's helicopters in Gaza. Seventeen people on the ground were wounded in the attack by Apache helicopter gunships.

The Palestinian leader is now effectively trapped inside Ramallah, unable to move unless Israel allows him to do so. The Israelis have been angered in the past by Mr Arafat's globe-trotting and complain that many terror attacks have taken place when he is out of the country. However, the immediate effect was to bring Israel's coalition government to the edge of collapse.

Foreign minister Shimon Peres led a walkout of Labour ministers in protest at the cabinet's decision to declare the Palestinian Authority "an entity that supports terror".

In a statement Mr Peres said the cabinet's decision had in effect decided to destroy the Palestinian Authority. The statement said that the Labour Party would consider its future in Israel's government.

Mr Sharon, however, said he held Mr Arafat's Palestinian Authority responsible for the suicide bombings that killed 25 Israelis in Jerusalem and Haifa and warned of more measures to come.

At a special six-hour session early today Israel's cabinet labelled the Palestinian Authority an " institution that supports terrorism," and said military, economic and diplomatic steps could be taken against it. The cabinet also declared the guerrilla group Tanzim - associated with Mr Arafat - and Force 17 - an elite unit of the Palestinian police - to be terror organisations.

During a televised address, Mr Sharon called the PLO leader "the greatest obstacle to peace and stability in the Middle East". Urging national unity, Mr Sharon said: "A war has been forced upon us, a war of terror." However, he stopped short of threatening to bring down Mr Arafat's regime, despite calls for such steps by some Right-wing cabinet ministers.