Palestinian minister Nabil Shaath condemned the strike as "murder in cold blood", and accused Israeli Prime Minister Ariel Sharon of trying to sabotage a possible meeting between his foreign minister, Shimon Peres, and Mr Arafat.

Israel has a policy of targeting and killing Palestinian militants it blames for attacks on Israelis, saying the Palestinian leadership does nothing to stop the violence.

A few hours later Palestinian gunmen retaliated by ambushing an Israeli army patrol near Tulkarm, killing one soldier and seriously wounding his female colleague.

The attack took place on the Israeli side of Green Line between Israel and the Israeli-occupied West Bank.

Blamed for killings

In its statement, the military held Mr Karmi responsible for the killing of several Israelis, including two shot dead in a West Bank restaurant in January.

"The Israeli authorities had given al-Karmi's name to the Palestinian Authority for his arrest, but nothing was done to that effect," the statement said.

The two men who died in Thursday's attack are believed to be junior members of the Fatah movement. Three other people in the vehicle, were wounded, including Mr Karmi.

A BBC correspondent in Jerusalem says this is the latest in a long line of killings which the Palestinians say are assassinations, but which Israel says are carried out in self-defence.

Nabil Shaath: Attack was "murder in cold blood"

The controversial assassinations policy has been condemned by the international community.

Even the United States, Israel's closest ally, has criticised what it terms "targeted killings", although Washington insists the Palestinians must do more to fight terror.

About 60 Palestinians have been killed in this way since the latest Palestinian uprising, or intifada, began a year ago.

Human rights campaigners say 10 of those were innocent bystanders.

'Sabotage'

Amid the continuing violence, the European Union has been trying to arrange a meeting between Israel's foreign minister, Shimon Peres, and Yasser Arafat.

But Palestinian cabinet minister Nabil Shaath said Thursday's attack was a deliberate attempt to undermine peace moves.

"It is a continuation to the crimes conducted by Sharon himself or ordered by Sharon in order to foil any new attempt to reach a peaceful settlement," he told reporters.

Preparations for a meeting, possibly next week, between Mr Peres and Mr Arafat have been continuing for the past several days.

Buffer zone

Mr Shaath said Mr Arafat would not go to any meeting unless it also covered diplomatic efforts to broker a peace deal and not just Israel's demand for an end to the Palestinian uprising - which broke out in September 2000 against Israel's occupation in the West Bank and Gaza Strip.

Mr Sharon returned from a three-day visit to Moscow on Thursday where he pushed for Russian to put pressure on the Palestinians to end the violence.

He was due to consult later in the day with security officials on the army's controversial plan to set up a military buffer zone along Israel's border with the West Bank that would be off-limits to Palestinians and allow troops to arrest intruders.