Israel celebrated its 55th occupation birthday amid cautious optimism over the Middle East peace process despite continuing bloodshed which claimed the life of a Palestinian toddler in the Gaza Strip. The 18-month-old infant, Eliyan al-Bashiti, was hit in the neck when Israeli soldiers manning the Gadid settlement fired on the Palestinian town of Khan Yunis, the scene of frequent exchanges of fire between Palestinian gunmen and Israeli troops, Palestinian officials said Wednesday. An Israeli army spokeswoman said Palestinian gunmen in the area had twice opened fire earlier in the day and that troops had shot back. Palestinian security sources said the toddler had been in his house when he was hit. The army said its troops had only targeted the sources of Palestinian fire. But hopes for a waning of the violence have been encouraged recently, with Israeli army chief General Moshe Yaalon saying the worst of the 31-month Palestinian intifada, or uprising, was over. Prime Minister Ariel Sharon, speaking at a memorial to soldiers killed in wars since Israel was founded in 1948, also said there was a new chance to halt one of the country's most bitter conflicts, but stressed that hope resided more with the army than with the newly released US-backed "roadmap" for peace. "The worst of the intifada is behind us," Yaalon said on public radio on the eve of the 55th birthday of the Jewish state. In an interview aired Tuesday, Sharon also acknowledged he had received many messages over Syria's offer to resume peace negotiations over the fate of the Golan Heights which have been frozen since 2000. Syria denied his comments. The United States has bolstered efforts to tackle the crisis since defeating the Iraqi regime of Saddam Hussein, pressuring Palestinian leader Yasser Arafat to appoint a moderate premier and publishing the roadmap to wind down the conflict and create a Palestinian state. US Middle East envoy William Burns has met in recent days with both Sharon and the new premier, Mahmud Abbas, urging the former to freeze Jewish settlement growth and the latter to follow up on vows to crack down on armed militants. But in a snag for US plans, Israeli Defense Minister Shaul Mofaz has decided to suspend the dismantlement of around 10 rogue outposts in the West Bank. However, a defence ministry spokeswoman stressed that in the end "all the illegal settlements will be dismantled." The Maariv newspaper reported Tuesday that US satellites were monitoring Israel's compliance with the roadmap on the issue. Israel's birthday celebrations began late Tuesday with dances, shows and firework displays across the country. Security was tight amid fears of Palestinian attacks, with thousands of soldiers and police officers deployed. A Palestinian was killed in a mystery blast in the northern West Bank on Wednesday. Palestinians said he may have been killed by the Israeli army. Late Monday an Israeli settler was shot dead when unknown gunmen ambushed their car in the northern West Bank. And the spiritual leader of Hamas Al-Shaikh Ahmad Yassin warned prime minister Abbas, who has pledged to disarm militant groups, of pursuing a "policy of surrender" toward Israel. To give the fledgling peace process a push, US Secretary of State Colin Powell is due in Israel on Saturday to meet with leaders from both sides, his first visit since April last year. **PHOTO CAPTION*** Sheikh Ahmed Yassin warned Israel that Hamas would keep up its attacks against the Jewish state.(AFP/File/Mohammed Saber)