Israel's defense minister called off talks set for Wednesday with the Palestinian interior minister on easing an Israel military clampdown, after mortar shells were fired into a Jewish settlement in the Gaza Strip. The Israeli minister, Binyamin Ben-Eliezer, postponed the meeting with Abdel-Razzek Yahya after what Israel called a "grave incident" overnight in which a shell hit a house also used as a kindergarten. No casualties were reported. The talks had been aimed at pushing forward a fragile security deal covering the West Bank city of Bethlehem and the Gaza Strip that is seen as a test case for a broader cease-fire.

The agreement was conditional on Palestinian security forces taking responsibility for curbing militants' attacks on Israelis. "The defense minister expects the Palestinians to act decisively to stop terror," the Defense Ministry said.

The postponement also followed an Israeli raid on a Gaza coastal area early on Wednesday in response to what Israeli military sources said was an apparent attempt to smuggle in arms by sea.

The ministry said the meeting would be rescheduled but no date was given.

"The Israeli decision (to call off the meeting) does not surprise us. We are used to Israel slipping away from all agreements," said Nabil Abu Rdainah, a senior aide to Palestinian President Yasser Arafat

ISRAELI OCCUPATION FORCES HUNT FOR WEAPONS

Israeli occupation forces fired cannons at large metal tubes floating in the Mediterranean on Wednesday, trying to intercept a suspected weapons shipment headed for the Gaza Strip

Late Tuesday, Palestinians fired a mortar shell at a home in a Jewish settlement in Gaza and hit the top floor, the military said.

The family in the house was unhurt.

Despite the two incidents, Palestinian forces on Wednesday began setting up checkpoints in the Gaza Strip to show they are capable of maintaining order as part of an agreement on Israeli troop withdrawals, Palestinian officials said.

Also Wednesday, U.S. Deputy Assistant Secretary of State David Satterfield arrived in the West Bank to discuss reform of Palestinian civil society, security cooperation between Israel and the Palestinians and an eventual return to direct peace talks, a U.S. diplomat said on condition of anonymity.

Palestinian Cabinet Minister Saeb Erekat confirmed that he met with Satterfield Wednesday morning in the West Bank town of Jericho. He said he told the U.S. envoy that Israel must end its occupation of Palestinian territories.

PHOTO CAPTION

Israeli occupation army soldiers aim their weapons out the back of their armored personnel carrier as they force a curfew in the West Bank town of Nablus Tuesday Aug. 27, 2002. (AP Photo/Nasser Ish