By Roger Hardy BBC Middle East analyst

As Israeli military strikes against Palestinian targets continue, observers are debating whether the Israeli Government wants to put strong pressure on Palestinian leader Yasser Arafat - or topple him from power.

By describing the Palestinian Authority as an entity which supports terrorism, the Israeli Government has crossed a threshold.

Using the analogy of the US-led war in Afghanistan, Israeli Prime Minister Ariel Sharon is saying that Yasser Arafat and the PA are playing the same role as the Taleban.

Ariel Sharon has drawn parallels with the US campaign against Osama Bin Laden

He is implying that if they go on supporting terrorists they will themselves being treated as terrorists.

This is already a step too far for the Labour Party members of Mr Sharon's coalition government.

Foreign Minister Shimon Peres and the other Labour ministers walked out before the cabinet voted on the proposal last night.

Labour is now considering whether to stay in the government - and Mr Peres has gone off to Romania, where he is due to have talks with the US Secretary of State, Colin Powell.

Both men are having to digest the ominous implications of the cabinet's decision.

American frustation

The Americans are undoubtedly frustrated with the past behaviour of Yasser Arafat, but they still hope he has a role to play.

Things are looking bleak for Anthony Zinni's peace mission

Mr Powell has already made it clear his special Middle East envoy, retired General Anthony Zinni, will stay in the region to pursue the peace initiative Mr Powell launched two weeks ago.

Many have already written off the initiative as still-born.

Nevertheless the Americans are struggling to make clear they have not given Ariel Sharon a blank cheque.