Israeli Prime Minister Mr Ariel Sharon has said the first stage of Israel's offensive in the West Bank is over but vowed the campaign against militants would continue.
Mr Sharon said: "We have finished this stage of the operation called Defensive Shield." He said Israel had "achieved very notable accomplishments" and the fight against terrorism would continue but that "it will work according to a different method".
Israel withdrew forces from Nablus and most of Ramallah, but soldiers have remained at Mr Yasser Arafat's compound in Ramallah and the Church of the Nativity in Bethlehem, where armed Palestinians are holding out.
In Gaza, two Palestinians were killed in a clash with Israeli forces yesterday, Palestinian security officials said. The Palestinians said the two were guarding the Boureij refugee camp when an Israeli undercover unit killed them. The Israeli army made no comment.
The Israeli army said its forces remain in several villages near Jenin, although Israeli forces left Jenin city and the neighbouring refugee camp, the scene of the heaviest fighting in three weeks of Israeli incursions aimed in the West Bank.
US Secretary of State Mr Colin Powell said Israel should loosen its confinement of Mr Arafat to give him a better chance of exercising his authority.
But Israel said it will maintain its siege of Mr Arafat's headquarters until he surrenders four men wanted for the killing last October of Tourism Minister Mr Rehavam Zeevi and the man accused of arranging a weapons shipment to militant groups.
Mr Arafat's aides have said the suspects are in custody in the compound and will be tried by the Palestinian Authority.