Israeli troops killed an Islamic militant who tried to infiltrate a Jewish settlement in the Gaza Strip on Tuesday after Israel rejected a conditional cease-fire proposal by Palestinian President Yasser Arafat.

Islamic Jihad, one of several militant groups whose violence Washington has sought to quell with a "road map" to Palestinian statehood, claimed the gunman shot dead outside Dugit settlement overnight as its own.

Raising fresh prospects for relieving the diplomatic impasse, a Palestinian newspaper said Israel could free 215 Palestinian security detainees next week as part of a prisoner-swap deal with Lebanese guerrilla group Hizbollah. Senior Israeli sources declined comment on the report in Al-Quds daily but confirmed the release of Palestinian detainees was part of "accelerating" negotiations under way for the return of four Israelis held by Hizbollah since 2000.

On Monday, Arafat told international envoys behind the road map he was committed to reaching a total cease-fire with Israel, but insisted they dispatch a peacekeeping force to end three years of fighting.

Israel dismissed the call as a ruse by Arafat to dodge an Israeli security cabinet decision in principle this month to "remove" him. Israel accuses Arafat of fomenting violence in the revolt that erupted after statehood talks stalled. He denies it.

HIZBOLLAH PRISONER SWAP SEEN NEXT WEEK

With German mediation, Israel is negotiating the release of a businessman held by Hizbollah and the bodies of three soldiers believed to have died after the guerrilla group captured them on the Lebanese frontier. It also wants information at least on the fate of an Israeli airman downed over Lebanon in 1986.

Hizbollah seeks the release of 15 Lebanese including two guerrilla leaders Israel seized as "bargaining chips," as well as Palestinians, Syrians and Jordanians held in the Jewish state.

Al-Quds said a swap would likely be in place early next week after the Jewish new year, with Israel freeing 215 Palestinians and 185 Lebanese, Syrian and Jordanians from its jails.

An Israeli security source declined to discuss the release roster but said: "Talks are definitely accelerating in Germany."

Envoys for Israeli Prime Minister Ariel Sharon have also been in Washington to calm U.S. concerns over a security barrier that is being erected around Jewish settlements in the West Bank and has drawn land-grab charges from Palestinians.

Secretary of State Colin Powell said on Monday he did not expect the Sharon government to respond to U.S. pressure on the settlements until the Palestinians rein in militants as required by the road map to statehood in the West Bank and Gaza. Palestinians accuse Israel of hobbling the plan by expanding settlements that break up the West Bank territorial contiguity. "It is very difficult if not impossible for the prime minister ... in the face of activity that seems to be tolerated by the governmental authorities on the other side...to say to his people that he is yielding to pressure from the Americans or anyone else," Powell said on the televised Charlie Rose Show.

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