President Yasser Arafat has denied any knowledge of a major arms shipment claimed to have been destined for the Palestinian Authority.
The US demanded an explanation from Mr Arafat after Israel reported its navy had seized a ship in the Red Sea carrying 50 tonnes of mainly Iranian-supplied weapons and explosives for the Palestinian Authority.
Israeli army said the vessel, Karine-A, was purchased by the Palestinian Authority and that its captain and some of its crew were officers in the Palestinian naval police force.
A spokesman said rockets, assault rifles, anti-tank missiles, mines, ammunition and explosives were found in the cargo.
Earlier a Palestinian spokesman denied involvement with the arms. "This is Israeli propaganda," he said.
The US Middle East envoy Mr Anthony Zinni called for an explanation in a meeting at the Palestinian leader's headquarters in Ramallah.
"We certainly condemn any attempt to smuggle weapons in because smuggling weapons into this area and providing them to militants, or militants getting additional weaponry in this area, escalates the conflict" a US State Department spokesman said.
During the Ramallah meeting, Mr Arafat denied any knowledge of the shipment and offered his full cooperation and a full investigation.
Mr Zinni urged the Palestinian leader "to take immediate steps to prevent future attempts to bring in additional weaponry or escalate the current conflict," the spokesman said.
But ccording to Israel's armed forces chief, General Shaul Mofaz, the link between the boat and the Palestinian Authority is "evident, clear and brooks no denial".
Israel will ask the international community to declare Iran a terror-supporting state following the seizure of the ship.
"They cannot continue playing games, they have to make a strategic decision whether they support terrorism or they are against it," Foreign Minister Mr Shimon Peres said in a statement.
AP &