GAZA CITY, Gaza Strip — Israel's Cabinet approved retaliation Thursday for Palestinian suicide bombings, expected to include a military strike in the Gaza Strip, while Palestinians arrested 16 Hamas members in a first sign that Yasser Arafat was taking action against terror groups.

In Bethlehem, talks on resolving a five-week standoff at the Church of the Nativity broke down Thursday, after a partial deal had appeared imminent. The deal foundered over a Palestinian demand to allow a European monitor into the shrine to safeguard 13 suspected militants who were to remain there until they are deported. So far, negotiators have failed to find a country to host them.

Israeli Prime Minister Ariel Sharon convened his security Cabinet at an air force base early Thursday, immediately after his return from the United States, to approve a response to a Hamas suicide bombing Tuesday in a pool hall in a Tel Aviv suburb. Fifteen Israelis were killed in the attack, the deadliest since Israel launched its West Bank military offensive, "Defensive Shield," on March 29.

The Cabinet did not say what type of response it authorized, but a strike against Gaza was widely expected. Hamas' senior leaders are in Gaza, and Israel has so far refrained from targeting them.

Foreign Minister Shimon Peres suggested that the army was not planning a large-scale operation. "We are going to strike at the nests of terrorism, whether in Gaza or elsewhere," Peres said. "The intention is to reach only those places where the isolated concentrations of suicide terrorists are located."

In Gaza City, Hamas officials, speaking on condition of anonymity, reported that 16 members were arrested Thursday by Palestinian police. None of the senior members of the group was among those taken into custody.

Despite the Israeli warnings and the arrests by the Palestinian police, none of the Hamas leaders appeared to be taking special precautions. One leader, Mahmoud Zahar, a lecturer at Gaza City's Islamic University, said he was busy preparing for weekend exams, and two others — Ismail Abu Shanab and Abdel Aziz Rantisi — said they had scheduled back-to-back media interviews.

Three men were posted outside the Gaza City home of Hamas founder Ahmed Yassin, including his son Mohammed. Yassin's son said his father was inside but wasn't received visitors and that he planned to leave to attend the wedding of one of his seven daughters later in the day.

The arrests of the 16 Hamas members appeared to indicate that Arafat is responding to growing U.S. pressure to take action against Palestinian militants. Palestinian Information Minister Yasser Abed Rabbo said that the Palestinian Authority "has already taken some measures to control the security situation."

Meeting another U.S. demand, Arafat appeared on Palestinian television Wednesday and spoke out against attacks on Israeli civilians. "I gave my orders and directions to all the Palestinian security forces to confront and prevent all terror attacks against Israeli civilians from any Palestinian side or parties," he said.

President Bush called Arafat's statement an "incredibly positive sign" and urged Israel to consider the consequences on peace prospects of "whatever response" it chooses.

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However, Israel was not swayed. "We are treating this condemnation (of terror) with more skepticism than the president of the United States," said Israeli Transport Minister Ephraim Sneh. "We will judge Arafat by his actions, not his declarations."

Yassin said Wednesday his group would continue carrying out bombings against Israelis, despite Arafat's new call for an end to terror attacks.

Palestinian militants have unleashed about 60 suicide bombings during the 19 months of Mideast fighting, and Hamas has carried out more attacks than any other group and has been responsible for all of the deadliest blasts.

Despite growing apprehension about an Israeli offensive, the streets of Gaza City appeared normal on Thursday morning, filled with honking taxis and donkey-drawn carts. Shops and markets were open and busy. However, increased police patrols were visible in some parts of the city.

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