The BBC's Jim Muir: "This incident did nothing to improve the political climate"

The announcement was immediately rejected by the Palestinian Authority.

The Israeli cabinet said it would only resume withdrawals if the Palestinians renounced plans to declare an independent state in May, stopped calling for the release of prisoners "with blood on their hands" and halted all "incitements to violence".

Prime Minister Binyamin Netanyahu's spokesman Aviv Bushinsky said: "If the Palestinians do not accept all these conditions, Israel will not go ahead with the scheduled withdrawals".

But chief Palestinian negotiator Saeb Erakat said: ''We categorically reject these conditions'.'

A protest in support of Palestinian prisoners turned violent

He said the terms were ''completely unacceptable, and not part of the US-brokered Wye River accord signed in October.

The ultimatum comes 10 days before a visit by US President Bill Clinton to solidify the agreement.

Under the land-for-security deal, Israeli troops are to withdraw in three phases from 13% of the West Bank in exchange for tougher measures against Palestinian militants.

Fresh clashes in West Bank

The latest violence erupted after a group of Palestinians, protesting against the continuing detention of Palestinian prisoners, stoned a car carrying an Israeli soldier near Ramallah.

Leslie Susser of the Jerusalem Report: "There is tension over the prisoner issue"

The driver fled the moving car, while a soldier was dragged out and struck repeatedly on the head with rocks before the vehicle was set alight.

Palestinians also clashed with Israeli police in East Jerusalem, following the funeral of a murdered Palestinian.

The 41-year-old father of six was stabbed to death in a killing blamed on an Israeli serial killer.

During the funeral, mourners torched an Israeli car and stoned Israeli police. They responded with rubber bullets.

Letter to Clinton

Before announcing the suspension of troop withdrawals, Mr Netanyahu wrote to Mr Clinton, accusing the Palestinians of breaching the peace deal.

He attacked the Palestinian leadership's plans to declare an independent state next year, even though the final phase of negotiations has not yet begun.

And he complained about statements by the speaker of the Palestinian legislature, Ahmed Qorei, calling on Palestinians to fight the further expansion of Jewish settlement on the West Bank.

Palestinian President Yasser Arafat dismissed the Israeli accusations, saying they were nothing new.