A stand-off between the Palestinian Authority and Israel over the arrest of activists wanted by each side aggravated tensions early today and gunfire rang out overnight in the West Bank and Gaza Strip.

The Palestinian Authority has refused to arrest seven men on an Israeli most-wanted list that could mark them for death under Israel's widely condemned hunt-and-kill policy.

It called on the Jewish state to first take action against 50 Israeli citizens - Jewish settlers in the West Bank and Gaza - whom Palestinians brand "terrorists" and "killers".

Israel said the seven Palestinian men it wants arrested are activists intending to "continue to carry out attacks" despite Israeli appeals to the Palestinian Authority to arrest them and other militants.

At least 513 Palestinians, 131 Israelis and 13 Israeli Arabs have been killed since the start 10 months ago of a Palestinian revolt against Israeli occupation in the West Bank and Gaza. Jewish mourners buried a pregnant settler killed on Sunday by suspected Palestinian gunmen as she drove along a West Bank road. Three others were wounded in the incident.

Tens of thousands of Palestinians, demanding revenge, marched in Tulkarm in a joint funeral for a Muslim militant killed in an Israeli missile strike in the West Bank city on Sunday, and for a second man killed in disputed circumstances.

Palestinians branded the missile attack an assassination. Israel said the Hamas activist killed was to have given an explosives belt to a would-be Palestinian suicide bomber.

Violence appeared to taper off yesterday, although witnesses reported late-night gunfire at the entrance to the West Bank city of Bethlehem, the Egyptian-Israeli border and other isolated acts of violence in the West Bank and Gaza Strip.

UN Secretary-General Kofi Annan again urged Israel to stop using its armed forces to target individual Palestinians for death, saying the tactic deeply disturbed him and violated international law.

In a statement issued by his spokesman, Annan said Israel's policy of targeted killings could "only further inflame an already very dangerous situation" and appealed to the government of Israel to "put an end to it".

Palestinian officials have accused Israel of assassinating some 60 activists since the uprising erupted in September after peace talks stalled. Israel defends its strategy as a necessary self-defence to prevent planned terror attacks.

It said its list of seven wanted activists was meant to pressure the Palestinian Authority to arrest the men and that "no other interpretation or explanation as to the purpose...was implied, or has been authorised by the government of Israel".

The White House called anew for Israelis and Palestinians to end the bloodshed, warning both sides that "continuing down this path will only lead to disaster."