HIGHLIGHTS: Bush Won't Deal With Arafat Even if He Wins Re-election||Key U.S. Allies Express Little Enthusiasm For Bush's Call For Replacing Arafat||Fearing Confrontation with Palestinian Resistance Men, Occupation Army Uses Helicopter Gunships & Relatives to Force Besieged Palestinians in Hebron to Surrender||Occupation Forces Kill an 8-year Old Boy in Jenin|| STORY: In Canada, at a meeting of the leaders of eight industrialized democracies, Bush declined to rule out military force to oust Arafat. But, he said, "In this case ... the tool I'm using is diplomatic pressure to work with our friends and allies to convince all parties they have a responsibility to bear."

British Prime Minister Tony Blair backed President Bush. "We've got to have leadership we can negotiate with that is serious about peace and resists and totally rejects terrorism," he said at a news conference with the president.

Bush, who demanded on Monday that Palestinians oust Yasser Arafat, again ruled out dealing with him, even if Arafat wins re-election as head of the Palestinian Authority. "I meant what I said; there needs to be change," Bush said.

A knowledgeable official said Israel last week provided the United States with the information that Arafat authorized a 20,000 U.S. dollar payment to the Al Aqsa Martyrs Brigade, a group that claimed responsibility for a Palestinian bombing attack in Jerusalem.

Israeli intelligence has provided the administration with a steady stream of information linking the Palestinian leadership to terrorism operations, including attempts to ship Iranian arms to the Palestinians.

Palestinian officials on Wednesday rejected the claim of the payment, with one senior official saying the report was a forgery circulated to create problems between the PA and the US administration. "If there is such a report, let the Americans show it to us and discuss it with us... it should be easy to verify if Arafat actually signed the transfer of money to the brigade," the senior official said.

With the diplomatic efforts under way, a trip Powell planned to region was put on hold. Also halted were preparations for an international conference of foreign ministers.

BUSH THREATENS TO HOLD PA FUNDS

President Bush also threatened to cut off money to the Palestinians if they fail to embrace reform, stepping up pressure for the removal of Arafat.

"I've got confidence in the Palestinians, when they understand fully what we're saying, that they'll make the right decisions," said Bush. But he warned: "I can assure you, we won't be putting money into a society which is not transparent and corrupt, and I suspect other countries won't either." The US donates approximately 80 million U.S. dollars a year in humanitarian assistance to the PA via the US Agency for International Development. Congress also appropriated 15m. U.S. dollars in supplemental disaster relief aid for the Palestinians this spring.

Bush's threat came as key US allies meeting in the Canadian Rockies resort of Kananaskis expressed little enthusiasm for Bush's call for replacing Arafat with new leaders "not compromised by terror."

Like Bush, British Prime Minister Tony Blair said he was frustrated with Arafat, who has called elections for January and
announced plans to run again.

However, Blair added: "It's for the Palestinians to elect the people that they choose to elect.... So this is not a question of us going in and saying to the Palestinians, 'Look, we're going to run your election.'"

Blair and other European leaders appeared to differ with Bush over Bush's view that the Palestinian people must replace Arafat as their leader before the US will support an independent Palestinian state.

U.S. SAYS GAINING GROUND WITH ARAB LEADERS

Meanwhile, the US claimed Wednesday it is gaining ground with Arab leaders in its campaign to reform the PA.

Powell sought support in telephone calls to Egyptian Foreign Minister Ahmed Maher and Jordanian Foreign Minister Marwan Muasher, while other American diplomats pursued other Arab leaders.

"Fundamentally, there has been a positive measure of support," State Department Richard Boucher said. "They have expressed support for reform in the Palestinian Authority. They've expressed support for more responsibility in the Palestinian Authority." Bush has set tough conditions for his proposed path to provisional Palestinian statehood within 18 months and a final settlement in three years.

In addition to seeking new leadership, Bush has called for sweeping democratic reforms, a constitution, and a new security
arrangement that Israel can trust.

HEBRON IMARA UNDER SIEGE

Anxious to avoid another standoff with trapped Palestinian Resistance men, the Israeli occupation army used helicopters, sniper fire, and relatives to force the remaining Resistance men out of Hebron's Imara government complex.

The takeover of the city and surrounding villages has netted over 40 Resistance men suspected of being engaged in or planning Resistance attacks. The occupation army has also confiscated hundreds of bombs including sophisticated explosives like those used by Hizbollah in Lebanon and scores of weapons, according to occupation army sources.

The focus of the occupation army's thrust into Hebron is the government complex known as the Imara. Occupation troops have surrounded it since early Tuesday, and over 120 members of Palestinian Authority security forces inside have surrendered. About 20 were considered "senior wanted men." A total of 300 Palestinian men were rounded up, but all but 40 were released after questioning.

The occupation army has meanwhile taken over the surrounding offices that belonged to Palestinian security services.

One father went inside and emerged with his son, Mamun Amr, a Resistance man who has been wounded many times in recent clashes with occupation troops. In the evening Wednesday, an attack helicopter fired its heavy machine guns into an open area inside the fortress, in what the occupation army said were warning shots to force the Besieged men out.

Hebron is the seventh Palestinian city taken by the occupation army as part of Operation Determined Path, launched last week in a fresh crackdown on Palestinian Resistance

GRIP TIGHTENED ON WEST BANK

Israeli forces controlled most West Bank cities and towns, confining at least 700,000 Palestinians to their homes while carrying out arrests and searches. The duration of the operation, which began last week when back-to-back bombings killed 26 Israelis, wasn't known, though Israeli occupation officials have said it would be prolonged.

In the town of Jenin, Israeli forces shot and killed an 8-year-old boy, Palestinian doctors said.

PHOTO CAPTION

Smoke rises over the West Bank city of Hebron June 26, 2002, during shelling of the Palestinian police building by Israeli forces. Palestinian President Yasser Arafat called elections for January and will stand for office again despite President George Bush's appeal to Palestinians to dump their longtime leader. (Nayef Hashlamoun/Reuters)