This kind of response is too aggressive and it just serves to increase the level of tension and violence in the region.

Colin Powell

Earlier, tens of thousands of Palestinian mourners gathered at the funerals of Tuesday's victims to demand revenge as Israel rejected condemnation of the attack.

Palestinian leader Yasser Arafat said the attack made international observers in the region all the more necessary.

Mr Arafat, who is currently visiting Italy, said he would appeal to Prime Minister Silvio Berlusconi to do "everything possible" to get observers sent. Italy currently holds the presidency of the G8 group of industrialised nations.

The idea was endorsed by the G8 summit in Genoa last month.

Mr Arafat is also due to meet Pope John Paul II, who correspondents describe as a consistent supporter of the Palestinians in their claim for recognition of their homeland.

Explosion

As Israel maintained a high alert for possible retaliation by the Palestinian militant movement Hamas, an explosion ripped through a parking lot at a top west Jerusalem hotel. There were no casualties.

The worst clashes were in Hebron

And two Palestinians suspected of "collaborating" with Israel were reported killed in separate attacks in the West Bank.

Meanwhile the United States said it still hoped to salvage a regional ceasefire despite the escalating violence.

"We have constant hope that we can do this," State Department spokesman Richard Boucher was quoted as saying. "We work on it very hard."

'Aggressive' policy

Mr Boucher earlier condemned the controversial Israeli policy of attacking Palestinian militants deemed to be threats to security.

Hamas denies Mansour was involved in attacks on Israel

And his words were echoed by Secretary of State Colin Powell, who described the Israeli action as "too aggressive" and said it would increase tension in the region.

The Israeli cabinet has said it will continue the policy.

A statement issued after a top-level security meeting said Israel would target "terrorists and their commanders".

Hamas targeted

Mourners at the Nablus funerals shouted "revenge, revenge!" and "death to Israel!" as the bodies, wrapped in Palestinian flags, were carried aloft on stretchers.

But Israeli Prime Minister Ariel Sharon praised the rocket attack as one of Israel's most important successes.

Jamal Mansour and Jamal Salim, both senior Hamas activists, were among those killed when an Israeli helicopter gunship fired missiles into a third-floor research office belonging to the organisation.

The Israeli Defence Minister, Binyamin Ben Eliezer, argued that the attack had possibly saved hundreds of lives.

Israeli newspaper reports say intelligence officials have received an unprecedented level of warnings about possible attacks on Israelis.

The BBC's Middle East analyst Roger Hardy says the killings will only further radicalise Hamas and Palestinian society as a whole.