Shortly after the cabinet decision was announced, a Jewish bombing suspect was injured in a explosion in Jerusalem.

Mr Netanyahu has said he will not resume implementing the peace agreement until the Palestinian leader, Yasser Arafat, meets a number of conditions.

The Israeli cabinet is calling on Mr Arafat's Palestinian Authority to:

• cease incitement to violence
• carry out its obligation to collect illegal weapons
• drop its insistence on the release of security prisoners
• explicitly renounce plans to declare a Palestinian state next May

Paul Adams: Netanyahu's tough stand

The cabinet's approval could help Mr Netanyahu survive a parliamentary vote on the issue on Monday, by securing the support of hardliners in his coalition opposed to the peace deal.

Jerusalem blast

The news came as a bomb went off in Jerusalem. According to Israel Army Radio, a Jewish man was injured while planting a bomb near the gates of Jerusalem's Old City when it went off prematurely.

The radio said he was later arrested on suspicion of carrying out attacks against Arabs, including seven stabbings in Jerusalem over the past year.

There has been no confirmation from the police, and an Israeli court is reported to have imposed a news blackout while an investigation takes place.

Labour wants early election

Even if Mr Netanyahu wins the vote in parliament, the opposition Labour party has said it will press ahead with plans to force early elections next year.

Labour leader Ehud Barak, whose party began the Israel-Palestinian peace process in 1993, has pledged to implement the Wye River Memorandum.

Opening his election campaign on Thursday, Mr Barak also emphasised social issues, which have recently been overshadowed in Israeli politics by the question of peace and land deals.

A general election is not due in Israel until the year 2000, but Mr Netanyahu's seven-party coalition is falling apart over the peace deal with the Palestinians, which was brokered at Wye River in October.

In terms of the deal, Israel agreed to hand over a further slice of the West Bank to Palestinian control and start releasing Palestinian prisoners, in return for security guarantees by the Palestinians.

Despite intense pressure from US President Bill Clinton, implementation of the deal has faltered over ongoing violence, and what the Palestinians see as Israel's failure to keep promises on prisoners.

Earlier this week, Finance Minister Yaacov Neeman quit his post, saying the government had ceased functioning.