Israeli Prime Minister Mr Ariel Sharon lifted Palestinian President Mr Yasser Arafat's three-month confinement to the West Bank city of Ramallah today but kept up punishing military raids in the West Bank.
At least five Palestinians were killed in new violence, including two who died during an Israeli tank and troop raid in the West Bank city of Qalqilya.
A statement by Mr Sharon's office said Mr Arafat had met demands to arrest all the militants suspected of killing an Israeli cabinet minister last October and therefore could move freely in Palestinian Authority territory.
The decision, which will enable Mr Arafat to travel inside the West Bank and Gaza Strip, increased hope the two sides will be able to stop tit-for-tat violence spiralling out of control.
But any trip abroad by Mr Arafat, such as to a late-March Arab League summit in Beirut where a Saudi proposal for Arab-Israeli peace is expected to be discussed, will need approval by Israel, which controls borders and airspace in the West Bank and Gaza.
Cabinet minister Mr Saeb Erekat said the Palestinians could not accept any foreign travel restrictions on Mr Arafat: "They must show respect for the (interim peace) agreements signed." Mr Sharon was easing up on Mr Arafat as part of a carrot-and-stick policy gaining speed ahead of a new truce mission later this week by US Middle East envoy Mr Anthony Zinni.
The right-wing Israeli leader has also lifted a demand for seven days of calm before entering into ceasefire talks -- while pledging to continue military assaults coinciding with daily Palestinian attacks inside Israel.
Mr Sharon's double-edged policy appeared to be an attempt to appease left-wing members of his coalition government who want peace moves and also right-wing parties clamouring for tough military action against the Palestinians.
Foreign Minister Mr Shimon Peres, the leading dove in Mr Sharon's cabinet, held talks with senior Palestinian officials in Jerusalem but made no breakthrough on ending the violence.
Mr Erekat said: We told them: 'If you want a serious revival of the peace process, the Israeli government must immediately stop all attacks against the Palestinians'.
Mr Peres said the two sides would meet again. He said Sharon had decided after a week of blood and sorrow and tears that everything must be done to secure a ceasefire. "The main idea of war now cannot be acceptable to Israel," he said in a television interview.