HIGHLIGHTS: Only Israel's Withdrawal from the West Bank, Gaza & East Jerusalem Would End the Violence Now Gripping the Territories: Saeb Ereqat||Rumsfeld Refers to the West Bank as a "So-Called" Occupied Territory and Speaks of a Palestinian "Entity" Instead of a Palestinian "State"||Condoleezza Rice & Colin Powell Plan Separate Meetings with Palestinian Delegation|| Israeli-Palestinian Security Plan Appears to have floundered as Israel Changes Terms & Fatah Denounces It||Israeli Occupation Troops Penetrate Deeper into Gaza|| STORY: The head of a Palestinian delegation holding talks with the Bush administration rejected on Wednesday U.S. calls for the replacement of Yasser Arafat with a reform-minded, democratic leadership. (Read photo caption)

"That cannot be acceptable," Saeb Erekat said at a news conference. Arafat is the elected president of the Palestinian people and the alternative to him is chaos, Erekat said.

"Where do you think I come from - from Mars?" Erekat asked at a news conference. "I am part of President Arafat's leadership."

The longtime Arafat adviser accused Israel of stifling Palestinian efforts to bolster security, hold elections and institute reforms.

All Palestinian police stations on the West Bank have been demolished, Erekat said, and 6,279 Palestinian police are in jail. The 3.3 million Palestinian people on the West Bank "are living in the biggest prison in the world" and "are on the brink of starvation," he said.

Only Israel's withdrawal from the West Bank, Gaza and East Jerusalem will end the violence that has gripped the area, Erekat said. "We will not accept the Israeli occupation under any circumstance."

RUMSFELD VIEW VEERS FROM MIDEAST POLICY

In a jab at Secretary of Defense Donald H. Rumsfeld, who accused the Palestinian Authority on Tuesday of involvement in terror and questioned whether Israel could turn over territory to it, Erekat said Rumsfeld's statements contradicted those of President Bush.

Rumsfeld on Tuesday referred to the West Bank and Gaza as "so-called" occupied territory, questioned whether Israel would abandon Jewish settlements there and raised the possibility of a Palestinian "entity" rather than state.

"I thought there was only one American foreign policy," Erekat said.

A White House official also took an unsolicited shot at Rumsfeld, telling reporters anonymously that "this occupation must end through a negotiated settlement" and that Israeli settlement activity must stop.

Rumsfeld's views appeared in conflict with those of Secretary of State Colin Powell. State Department spokesman Philip Reeker said "individuals" are involved in terror but that Arafat's Palestine Liberation Organization had not been designated a terrorist group.

CONDOLEEZZA RICE & COLIN POWELL PLAN SEPARATE MEETINGS WITH PALESTINIAN DELEGATION

Condoleezza Rice, the president's assistant for national security, and Powell have planned separate meetings Thursday with the Palestinian delegation.

The results will be factored into an ongoing administration review of terror attacks on Israel and how to stop them.
"This is a process," Reeker said, declining to predict concrete results from the talks.

The visit by Erekat and two other Palestinian Cabinet ministers appointed by Arafat could accelerate assistance to Palestinian projects. They will meet with Fred Schieck, the deputy director of the Agency for International Development, on Friday after seeing Assistant Secretary of State William Burns.

Accompanying Erekat are Economy Minister Maher el Masri and Interior Minister Abdel Raza Yehiyeh, both of whom have won praise from Powell as "individuals that seem to be not only asserting authority and trying to work on the transformation but seem to be acting with authority

PALESTINIANS SAY ISRAEL CHANGED PLAN

The Palestinians and Israel agreed Wednesday on a plan for a gradual Israeli withdrawal from areas of the West Bank and Gaza Strip but the deal appeared to flounder later in the day when Palestinian officials said Israel had changed the terms.

Israeli Defense Minister Binyamin Ben-Eliezer laid out a proposal last week under which Israeli troops would gradually begin withdrawing from Palestinian-ruled parts of Gaza and the West Bank town of Bethlehem, in exchange for Palestinian guarantees that no attacks would be launched from these areas.

The Palestinian Cabinet accepted the proposal on Wednesday and Palestinian security officials and members of Israel's Shin Bet security services met later in the day to map out the details.

However, Palestinian officials emerged from the meeting and accused Israel of changing its offer. They declared the session a failure.

After the meeting between Palestinian and Israeli security officials, Arafat aide Nabil Abu Rdeneh said Israel had imposed new conditions on the Palestinians in the talks that were "impossible to accept or even to implement."

He wouldn't elaborate except to say that Israel hadn't mentioned withdrawing from Bethlehem in the talks, just Gaza, and he declared the meeting a failure

Calls placed to Israeli officials were not immediately returned.

Regardless, the Cabinet approval had been provisional pending the outcome of the meeting, and obstacles were still likely even if it were finalized.

Earlier, top officials of Palestinian leader Yasser Arafat's Fatah movement denounced the Cabinet decision, saying it had been taken without their consultation and amounted to a betrayal of the Palestinian struggle for the past 22 months of fighting.

Fatah's rejection of the pullout plan - presented by Israeli Defense Minister Binyamin Ben-Eliezer - cast a shadow over any potential deal. Fatah officials said the group's central committee - made up of 17 Palestinians whose support is critical to Arafat - would meet Thursday to discuss the decision.

He said Fatah now had to act on its own to represent the true needs of Palestinians "far away from personal interests of a group of individuals within the Palestinian Authority."

"The Ben-Eliezer plan is like treating cancer with aspirin," said Jibril Rajoub, a central committee member and the recently fired head of preventive security in the West Bank.

INCURSION INTO GAZA GOES DEEPER

The dispute came as Israeli tanks and armored vehicles went deeper into the northern Gaza Strip for the second night in a row, firing machine guns and at least one shell to knock out the electric transformer in the town of Beit Lahiya, Palestinian security officials and residents said.

Troops were going house to house, conducting searches, said Mayor Mohammed al-Masri. There were no immediate reports of injuries; an incursion of more than two hours in the same area early Wednesday left one Palestinian policemen dead.

Israeli troops, meanwhile, launched several strikes against Palestinian Resistance suspects Wednesday that left six people dead.

PHOTO CAPTION

Saeb Erekat, a longtime adviser to PLO leader Yasser Arafat, gestures during an address at the Center for Policy Analyst in Washington Wednesday, Aug. 7, 2002. A delegation headed by Erekat, whose removal President Bush has demanded in a drive to counter terror and end corruption before the Palestinians establish a state, will meet Thursday with Secretary of State Colin Powell and Condoleezza Rice, Bush's national security adviser, (AP Photo/Lawrence Jackso