HIGHLIGHTS: Abu Rudeina: Collective Punishment Continues Despite Israeli Claims Measures Are Being Taken to Ease Restrictions in Occupied Palestinian Cities||Eliezer to Discuss Security Pilot Scheme with Palestinians||Palestinians Defy Curfew in Nablus|| STORY: A meeting of Israeli and Palestinian finance ministers was cancelled without any immediate explanation, while Israel pressed for new security talks reportedly to ease tensions in the occupied territories.

The moves were part of efforts in Israel and abroad to unblock the Middle East impasse and resolve the 22-month-old Israeli-Palestinian conflict that has cost nearly 2,400 lives on both sides.

They come with tensions still high following a spate of violence over the last week since 15 Palestinians, including nine children, were killed in an Israeli air strike targeting a top militant in the Gaza Strip.

Israeli Prime Minister Ariel Sharon, under pressure over the Gaza attack and the occupation of most of the West Bank that has sparked a growing humanitarian crisis, announced Sunday what he claimed to be measures to improve the condition of Palestinians.

But Nabil Abu Rudeina, an aide to Palestinian leader Yasser Arafat, told AFP Monday that "the collective punishment is continuing," dismissing the statement from Sharon's offices as "a smokescreen."

Salam Fayad, the newly appointed Palestinian finance minister, was to meet with his Israeli counterpart Silvan Shalom on Monday but Israeli public radio said the meeting was canceled. It gave no reason.

Israeli finance ministry director-general Ohad Marani said Sunday he met with Fayad to finalise the transfer of some 70 million shekels (14.7 million dollars) in withheld customs duties and taxes.

The sum is part of 430 million dollars of Palestinian tax revenue that Israel had frozen until it received guarantees the money would not be used to finance anti-Israeli attacks.

Fayad told AFP on Monday that no time had ever been set for the meeting and added the Palestinians had yet to see any of the money. "We are waiting for the Israeli response in this matter," he said.

The Shalom-Fayad meeting would have been the first such high-level encounter since Israel's deadly bombing raid on Gaza last week.

ELIEZER TO DISCUSS SECURITY PILOT SCHEME WITH PALESTINIANS

Israeli Defence Minister Binyamin Ben Eliezer is meanwhile to meet Palestinian officials to discuss a pilot security scheme under which Israeli troops would ease their grip on parts of the occupied territories in return for a calming of violence.

Israel's Public radio said Ben Eliezer was expected to meet recently appointed Palestinian interior minister General Abdelrazak al-Yahiya, but the defence ministry spokesman said the talks would be "at different levels" and had yet to be given a date.

The plan, which Ben Eliezer set out to the liberal Tel Aviv daily Haaretz, would involve a phased Israeli pullback from Palestinian areas it has reoccupied since the eruption of the intifada, or uprising, 22 months ago, in return for the Palestinians' taking charge of security.

The defence minister told the paper he had secured Mubarak's support for the plan, which he intended to start in the Gaza Strip, and which could eventually lead to Gazan labourers being allowed to return to jobs in Israel.

CONFRONTATIONS FLARE UP IN THE TERRITORIES

But while both sides appeared to be making tentative moves toward peace, violence continued in the territories.

A teenage Palestinian girl was killed Sunday as enraged Jewish settlers went on the rampage in Palestinian areas of the West Bank town of Hebron, after a funeral for a slain Israeli exploded into rioting.

Israeli troops meanwhile also continued their sweeps across the West Bank, arresting nine Palestinians, including a local chief of Islamic Jihad and two members of the Resistance group Hamas.

PALESTINIANs DEFY CURFEW IN NABLUS FOR A SECOND DAY

For the second straight day, thousands of Palestinians defied the occupation army's around-the-clock curfew and took to the streets of Nablus as shops and banks opened to accommodate them.

The occupation army, which has imposed the curfew in most West Bank cities and towns for the past 40 days, remained in armored vehicles ringing the city. But troops did not enter Nablus and made no moves to drive residents off the streets and back into their homes. At the edge of the city, the troops allowed trucks with supplies to enter, but blocked passenger cars.

Some Palestinians said troops were firing in the air over cars to turn away those approaching the city limits.

Palestinian residents under curfew in the West Bank have not previously challenged the army restrictions on a mass scale. If Nablus residents effectively lift the curfew on their own, such actions could spread to other West Bank cities.

Many Nablus residents rushed to the markets Monday, stocking up on fruits and vegetables and other necessities.
The city appeared to be almost as busy as on typical days before the curfew was imposed.

The Nablus protest began Sunday when the city governor, Mahmoud Aloul and Palestinian leader Yasser Arafat's Fatah movement, urged residents to defy the order.

OCCUPATION ARMY KILLS HAMAS MEMBER

Palestinian sources reported that the occupation army had killed a Hamas member near the Gaza Strip settlement of Dugit. According to an Israeli report aired by Israeli Radio the man was on his way to fire a Kassam missile at an internationally illegal settlement in Gaza.

The occupation army would only say it had detonated two rockets in a controlled explosion. The rockets had been aimed at the internationally illegal settlement of Nisanit.

HAMAS LEADERS ARRESTED

Israeli occupation soldiers have also arrested two leaders of the Resistance group Hamas in an overnight raid of a refugee camp in Beitunya, near the West Bank city of Ramallah.

The two men, named as Hussein Abu Kweik and Faraj Romani, were captured in a house raid in which Palestinian witnesses said helicopters and armoured personnel carriers were used

PHOTO CAPTION

Confrontations flare up in the territories despite claims by Israel that measures are being taken to ease restrictions on reoccupied Palestinian cities.