Arafat has been under pressure to reform security
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Palestinian leader Yasser Arafat has overhauled his security forces - a day after a spate of kidnappings in Gaza.
Prime Minister Ahmed Qurei spoke of a "catastrophe" and offered to resign, but this was turned down by Mr Arafat.
The security reform envisages three security branches instead of eight. A new security chief has been named.
Mr Arafat also fired the police chief - one of several people kidnapped by gunmen complaining about corruption within the Palestinian Authority.
Overhauling the security services has been a long-standing international demand on Mr Arafat.
A state of emergency has been declared in Gaza.
Before his offer of resignation, Mr Qurei had scheduled an emergency meeting to discuss the government's response and possibly its future.
Mr Qurei described the security situation as "a real disaster, a real catastrophe, and an unprecedented lawlessness".
Negotiations Minister Saeb Erekat said Mr Qurei's offer had been rejected by the Palestinian leader.
Corruption allegations
Arafat aide Nabil Abu Rudeina said that the leader had decided "with immediate effect" to cut the security services to three - police, general security and the intelligence service," AFP reported.
Mr Arafat has appointed his nephew - Musa - as overall security chief. Major General Saeb al-Ajez replaces Ghazi Jabali - the Gaza police chief who was the first to be kidnapped on Friday.
His abductors, Jenin Martyrs' Brigades, had demanded that he be investigated in connection with corruption allegations.
The gunmen who took the hostages complained of corruption
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Amin Hindi, the head of Palestinian general intelligence, and his colleague Rashid Abu Shabak, the preventive security chief in Gaza, had offered to resign "because of the state of chaos and the lack of action by the Palestinian Authority to make reforms".
But Mr Arafat did not accept the resignations and is said to have reappointed Mr Hindi.
Among those kidnapped on Friday were four French aid workers and another Palestinian official, Colonel Khaled Abu al-Ula. They have all been released.
Security has been reinforced around key buildings, but otherwise Gaza City appears normal, says the BBC correspondent there, Alan Johnston.
The security situation in Gaza is always complex at the best times, our correspondent says, with heavily-armed militant factions exercising some degree of power alongside the forces of the Palestinian Authority.
Dissatisfaction
The four French aid workers were seized on Friday evening by Palestinian militants in a cafe in the southern Gazan town of Khan Yunis.
The four had been visiting Khan Younis after it was twinned with the French town of Evry, in the Parisian suburbs.
Witnesses said gunmen took them to the local headquarters of the Palestinian Red Crescent, but they were all released after a few hours.
The leader of the kidnappers, Abu Qusai, told Reuters news agency that the hostages were freed after intervention by Mr Arafat, UN officials and the French diplomats.
A group called Abu Rish brigades said they had carried out the abductions to draw world attention to Palestinian suffering caused by Israel's occupation.
They also said they were protesting at public criticism of Yasser Arafat by the United Nations Middle East envoy Terje Roed-Larsen.