Gunfire erupts near Bethlehem church

The stand-off has been going on for two weeks

Israeli troops are reported to have exchanged fire with armed Palestinians holed up in the Church of the Nativity in Bethlehem, as they step up psychological pressure on those inside.

Israeli Radio reported that fighting had broken out when Israeli troops took control of a hotel on Manger Square which overlooks the church compound.

The military has also been bombarding the area with confusing noises and thick smoke in an apparent attempt to disorientate some 200 people inside.

The stand-off around the church has continued for almost two weeks, despite attempts by Israel and church leaders to resolve the situation.

Snipers' box

Bethlehem's Governor, Mohammed Al Madani, who is inside the church, said one Palestinian had been shot in the leg by Israeli sniper fire, according to the AFP news agency.

Israeli military officials said two Israeli soldiers had been slightly wounded.

An Israeli surveillance balloon watches over the compound

Each side blames the other for starting the fire-fight.

An explosion overnight in Bethlehem was due to the controlled destruction of two bomb workshops, the Israelis said.

The BBC's Jeremy Bowen reports that smoke and sonic booms have been let off by the Israelis around the church.

Loudspeakers broadcast dogs barking, cocks crowing and women screaming, in an attempt to disorientate those inside, he said.

A protected box - which Palestinians say contains Israeli snipers - has been lowered from a nearby crane overlooking the church and gunshots have been heard coming from it, our correspondent reports.

Vatican outraged

The Palestinians on Sunday rejected as unacceptable an Israeli offer for those inside the church either to hand themselves over for trial in Israel or go into permanent exile abroad.

The Israeli army says there are at least 30 militants from Hamas, Islamic Jihad and Yasser Arafat's Fatah movement inside the church.

The church is believed by Christians to be the birth place of Jesus and is one of their most holy sites.

The stand-off has provoked outrage from the Vatican, which has accused Israel of reneging on its obligation to protect religious sites.

One monk was injured when he was fired on by Israeli soldiers.

Early on Monday, two people were reported to have been killed in the Bethlehem area.

In the village of Doha, south-west of Bethlehem, Rana Saadi al Karaji, a 24-year-old Palestinian woman, was shot dead as Israeli troops evacuated a building, AFP reported.

And in Labdia, east of Bethlehem, Mohammed Abu Maharib, 29, was shot dead in his car as Israeli soldiers carried out house-to-house searches, the agency quoted witnesses as saying.