'House arrest' lifted but Arafat confined to Ramallah
A Palestinian policeman holds a poster of Chairman Yasser Arafat in a damaged guesthouse near Mr Arafat's office in the West Bank City of Ramallah
Israeli cabinet ministers considered removing the ring of tanks around Mr Arafat's offices after Palestinian security forces arrested three suspects in the October killing of Israeli Tourism Minister Rehavam Zeevi.
Their detention was Israel's main demand in easing up on the Palestinian leader.
The Israeli political source said the 14-member security cabinet decided overwhelmingly that Arafat would remain in Ramallah but could leave his office and move around the city.
The source said the decision made it likely that Israeli tanks would be pulled back from positions about 100 metres from Mr Arafat's presidential compound.
A senior Palestinian official described the decision as shameless, saying it showed the Israeli government had no peace programme.
"I hope this will be an eye-opener for the administration and the European Union that this government is taking the whole region down on the path of extremism," Palestinian cabinet minister Mr Saeb Erekat said.