Thursday's car bomb killed two Israelis

"It is true there is still gunfire, it is true there are still clashes. Along with this I assess, from what I know, there are attempts on the Palestinian side and there is an intention to establish calm on the ground," he told Israel radio.

Overnight there was a tough military response by Israel to Palestinian shooting and a car bomb attack on Thursday in West Jerusalem, which killed two Israelis.

The militant Palestinian group, Islamic Jihad, says it planted the bomb which went off as the Palestinian leader, Yasser Arafat, and the Israeli Prime Minister, Ehud Barak, were preparing jointly to announce the latest truce.

The announcement was not made, raising questions as to whether the truce, based on last month's Sharm el-Sheikh agreement, can now hold.

New clashes

In Gaza on Friday thousands of Palestinians who support the militant Islamic group, Hamas, took to the streets.

Sharm el-Sheikh understanding

End the current violence and resume efforts towards peace Both sides to publicly call for an end of violence Eliminate points of friction, end incitement, and maintain calm Return to status quo for law and order, deployment of troops, re-open crossings into Palestinian territories Restart security co-operation

A 21-year-old Palestinian man died after being shot in the chest by live fire during clashes with Israeli soldiers on the outskirts of the West Bank town of Tulkarm.

A second Palestinian, aged 18, died of wounds sustained in the West Bank village of Hizma

Elsewhere in the West Bank, hundreds of Palestinian protesters marched towards an Israeli checkpoint in Ramallah where Israeli soldiers fired teargas and rubber-coated metal bullets. There have also been clashes in Bethlehem and Hebron.

BBC Jerusalem correspondent Hilary Andresson says that on the day when the politicians are talking about trying to implement a ceasefire the mood on the ground is still extremely tense.

The streets of Jerusalem are filled with paramilitary policemen and helicopters are flying over the centre of the city.

Friday Muslim prayers are often a time of raised tensions in Jerusalem. Israeli police again barred young Palestinians from praying at the Al- Aqsa mosque.

Bomb blasts ceasefire

Both the Palestinian and Israeli leaders say they are still committed to a new effort to implement the ceasefire agreed in Sharm el-Sheikh last month.

The current violence began on 28 September when Palestinians frustrated with the direction of the peace process rioted, after Israeli hardliner Ariel Sharon visited Al-Aqsa mosque compound in east Jerusalem, a site which is also holy to Jews.

Since then, more than 170 people have been killed - the vast majority of them Arabs.