Israel is implementing its policy of destroying all international and US initiatives

Nabil Abu Rudeina Palestinian official

The violence came as Israeli and Palestinian leaders reacted to US Secretary of State Colin Powell's Middle East policy speech on Monday.

Mr Powell called on the Palestinians to put an immediate end to violence and on Israel to stop building settlements.

Palestinian security officials said Israeli tanks blasted about 20 houses in the refugee camp - near the Egyptian border - with shells and machine-gun fire, injuring six people.

Power cut

They said 26 families had been forced from their homes and the camp's electricity supply had been cut.

An Israeli army spokeswoman said tanks had set out to destroy two buildings hiding tunnels used to smuggle arms from Egypt but had come under attack and returned fire.

Mr Powell's speech was widely welcomed

Nabil Abu Rudeina, a senior aide to Palestinian leader Yasser Arafat, said the incursion was designed to obstruct the American peace initiative.

"Israel is implementing its policy of destroying all international and US initiatives," he said.

In further violence, Israeli soldiers shot dead a 22-year-old Palestinian and wounded another near Nablus, in the northern West Bank, witnesses said.

The shooting followed an attack by gunmen on a taxi outside a Jewish settlement close to Nablus, in which three settlers were injured.

Two states

In a speech in Louisville, Kentucky, on Monday, Mr Powell said America's vision for the future of the Middle East included two free, prosperous states - Israel and Palestine - living side by side within secure borders.

He called on the Palestinians to "arrest, prosecute and punish the perpetrators of terrorist acts" and urged them to provide "real results, not just words and declarations".

At the end of the day, it is the people in the region taking the risks and making the hard choices who must find the way ahead

Colin Powell

But he said Israel also had to do its part.

He said too many Palestinians had grown up "with checkpoints, raids and indignities".

"We will push, we will prod, but... at the end of the day, it is the people in the region taking the risks and making the hard choices who must find the way ahead," he said.

Mr Powell said he was sending two senior advisors to the region, to act as US envoys.

They are Assistant Secretary of State for Near East Affairs William Burns and retired Marine Corps General Anthony Zinni - Mr Powell's senior adviser on the Middle East.

Stop the violence

President George W Bush also repeated a key US demand that Yasser Arafat crack down on Palestinian violence.

Many Palestinians have grown used to checkpoints

He said: "It also is important for us to remind Mr Arafat that in order for their peace discussions to begin, the level of violence must substantially be reduced."

Both sides have welcomed Mr Powell's remarks, emphasising the demands made of the other.

Senior Palestinian negotiator Saeb Erakat said they welcomed Mr Powell's request for Israel to end its occupation and to implement UN resolutions.

Settlers unhappy

Israeli Prime Minister Ariel Sharon also congratulated Mr Powell and President Bush "for their unconditional fight against international terrorism".

He said that Foreign Minister Shimon Peres would lead Israel's talks with the US envoys.

The only strong note of discontent came from the council of Jewish settlements in the Palestinian territories.

The Yesha council said that Mr Sharon must "clearly condemn the words of Secretary Powell on the subject of freezing settlements and use of the term occupied territories".

Jewish settlers believe they have an historic right to build communities on the land of biblical Israel.

Nearly 1,000 people have been killed since the current Palestinian uprising, or intifada, began 14 months ago.