Paul Adams in Jerusalem: "This is exactly what the Israeli government wants to see"

A spokesman for Israeli Prime Minister Binyamin Netanyahu said the clampdown, which included the rounding up of hundreds of other Hamas activists, was a public relations act.

Mr Arafat: Under pressure as he meets his cabinet

He said it did not reflect a true desire to destroy the infrastructure of the militant Hamas organisation.

The criticism comes as Palestinian leader Yasser Arafat holds his first cabinet meeting since signing the peace agreement with Israel a week ago.

Sheikh Yassin was put under house arrest by the Palestinian Authority after Thursday's bomb attack in Gaza in which an Israeli soldier was killed.

Hanan Ashrawi: "I hope that we do not get to the stage where people are punished for their political views"

The BBC Jerusalem Correspondent, Paul Adams, says these are the most drastic measures so far against Hamas, and the action against the Sheikh is bound to trigger resentment.

The Sheikh criticised the moves against Hamas in an interview with an Arab television station, saying the Palestinian Authority was protecting Israel when it should be looking after its own people.

Israeli ambassador in Washington, Zalman Shoval: "It's a good beginning"

His son said his father's telephone line was cut by the Palestinian authorities after the interview.

Senior Palestinian politician, Hanan Ashrawi said the moves against Hamas show the Palestinian Authority will go to any lengths to demonstrate its commitment to the peace agreement, even if it means violating civil, political and human rights.

Arafat condemns attack

BBC's Paul Royall: "The peace process is under pressure"

Immediately after the bomb, Mr Arafat condemned the attack and promised Mr Netanyahu he would do everything he could to find the bombers.

Mr Netanyahu repeated that the land-for-security pact the two sides signed last week depended upon systematic action by the Palestinian Authority to prevent such attacks.

Israeli Government spokesman Moshe Fogel said if the attack had succeeded, it would have blocked the peace process.

Moshe Fogel: "If this attack succeeded ... we would not be able to go ahead with the peace process"

"We can't go ahead with a peace process in which we have daily terrorist attacks against Israeli targets," he added.

Israeli and Palestinian security forces are reported to be co-operating in the investigation. An American representative, believed to be from the CIA, has also been at the scene.

Under the Washington peace agreement, the CIA is to help monitor security provisions.

Car bomb targets children

Bomb threatened peace deal

The car bomb attack targeted a bus carrying children to school from a Jewish settlement in the Gaza Strip.

The bomber and an Israeli soldier were killed, but no children were hurt.

Six people were also wounded in the blast. A Jewish settler then shot a Palestinian in the confusion.

A caller to Israel Radio said the attack was carried out by Hamas, but Sheikh Yassin declined to confirm or deny the claim.

Roads to Jewish settlements

Meanwhile the Israeli Government has announced that work on new roads to remote Jewish settlements is to start next week.

Some settlements would be virtually surrounded by Palestinian-controlled territory under the terms of the peace deal.