Palestinian leadership crisis boils on

8.30am

RAMALLAH, West Bank - The Palestinian cabinet failed on Tuesday to resolve a leadership crisis as Prime Minister Ahmed Qurie agreed to stay on for now but kept a threat to quit "because he has no powers", officials said.

Qurie is frustrated over President Yasser Arafat's refusal to allow him to reform Palestinian institutions widely seen as corrupt and out of touch. International mediators regard reforms as crucial to reviving Palestinian-Israeli peace talks.

A senior Palestinian official said Qurie, who decided on Saturday to quit over unprecedented pro-reform unrest, told a crisis cabinet meeting on Tuesday he would remain in his post for now but would not formally withdraw his tendered resignation.

Palestinian Negotiations Minister Saeb Erekat said Qurie was still deadlocked with Arafat over the president's unwillingness to cede him powers to launch meaningful reforms, particularly to a murky jumble of security services ridden by cronyism.

"President Arafat insists on rejecting the resignation," Erekat told Reuters after a crisis cabinet meeting. "Abu Ala (Qurie) insists on resigning. The crisis goes on."

Another senior official said Qurie wanted out essentially because he had no powers to effect change, or even to resign.

"How can he continue to run a government without powers? He feels he has failed to carry out any of is duties because he has no powers," said the official, who requested anonymity. "Our crisis is the state of chaos and it hasn't been resolved today."

Qurie, in office since November, quickly departed after the cabinet adjourned, refusing to take questions from reporters.

ARAFAT RESISTS SECURITY REFORMS

Participants in the cabinet meeting said the main issue was Qurie's demand that Arafat "empower" the interior minister to overhaul overlapping security services that answer to the president. Arafat has balked at this in the past.

Arafat is facing the stiffest test of his leadership since Palestinians obtained limited self-rule from Israel in Gaza and the West Bank a decade ago. Some fear the strife could eventually escalate into civil war.

A power struggle has erupted between Arafat's old guard, who returned from exile abroad after the self-rule deal reached with Israel a decade ago, and a younger pro-reform generation in Fatah staking out turf before Israel implements a plan to evacuate Jewish settlers from the Gaza Strip in 2005.

Arafat hastily shuffled security chiefs on Monday after a spate of violence by militants in his Fatah movement demanding moves to purge corruption.

UN Secretary-General Kofi Annan said the Palestinian Authority was in deep crisis and must act fast to overhaul its security apparatus, discredited by graft and internal feuding, if it hoped to stop increasing chaos in Gaza.

Annan urged Arafat to "take the time to listen" to Qurie and carry out the reforms international mediators have mandated as a condition for advancing a "road map" peace plan promising Palestinians a state in Israeli-occupied territories.

In the early hours of Tuesday, Israeli helicopters wounded two Palestinians in a missile strike on the home of Abu Youssef al-Quka, head of a militant umbrella group, the Popular Resistance Committees, in Gaza's Shati refugee camp.

Palestinian medics said the two wounded were treated for shrapnel injuries. It was not known whether Quka was hit.

- REUTERS