GAZA (Reuters) - The Palestinian militant group Hamas disclosed on Thursday that  European Union diplomats had held talks with some of its members, an apparent shift in EU policy that drew sharp criticism from Israel.

The Israeli newspaper Haaretz reported on Thursday that the EU had given low-level diplomats permission for contacts with representatives of Hamas's political wing.

There was no immediate comment from the 25-nation EU, which with the United States classifies Hamas as a terrorist group.

Israel, which rejects any contacts with Hamas, was quick to voice it concerns. "Hamas is a murderous terrorist organization responsible for countless acts of violence against Israeli civilians," Foreign Ministry spokesman Mark Regev said.

"We think the international community should be engaging the moderates in Palestinian society," he said. "We would be critical of a policy that could be perceived as appeasing the extremists."

Hamas is seen posing a growing challenge to moderate President Mahmoud Abbas's ruling Fatah party in coming parliamentary elections in the  West Bank and Gaza Strip.

Hamas spokesman Mushir al-Masri said Hamas mayors elected in recent voting had discussed international assistance and the truce with Israel in talks with EU diplomats. "Hamas is open to dialogue with all countries except the Zionist enemy, which occupies the land and kills our people," Masri said.

Hamas has killed hundreds of Israelis in suicide bombings during a Palestinian uprising that began in 2000. Israel has assassinated many of Hamas's leaders, including the group's founder and spiritual head Sheikh Ahmed Yassin.

U.S. SURPRISED

In an unsourced report, Haaretz said the EU decision had surprised the United States -- a co-sponsor with the EU, Russia and the United Nations of a Middle East peace "road map."

British Foreign Secretary Jack Straw disclosed last week that diplomats from his country had met officials from Hamas's political wing on two occasions. He said Britain would not have contacts with Hamas leaders until the group renounced violence.

Diplomats in Washington have said the United States is showing signs of easing its hardline approach toward Hamas. But the White House insisted there has been no change.

Israel's relations with the EU have long been strained over what it sees as pro-Palestinian bias. Israel prefers to deal with Washington on Middle East diplomacy.

Secretary of State Condoleezza Rice will hold separate talks in the region this weekend with Israeli and Palestinian leaders to help coordinate Israel's pullout from Gaza in August.

Diplomatic sources said Prime Minister Ariel Sharon's office had rejected a U.S. request for a joint news conference with Rice out of concern that she might apply public pressure to Israel to offer more cooperation to Abbas at a summit next Tuesday. A U.S. embassy spokesman declined comment.

U.S. security envoy Gen. William Ward, after talks with Palestinian officials, praised both sides for what he said was greater willingness to work together to ensure Israel's Gaza settlement evacuation does not take place "under fire."

"Leaders on both sides have a duty to take every effort and measure to ensure that disengagement takes place in this atmosphere of calm," he told reporters in Jericho.

Israeli troops on Thursday arrested several Islamic Jihad members including a local leader in the West Bank town of Jenin.

Islamic Jihad militants in Gaza responded by firing two rockets into southern Israel. One hit a college campus and the other damaged an unoccupied firetruck, causing no casualties. (Additional reporting by Matt Spetalnick in Jerusalem and Cynthia Johnston in Jericho)

JENIN, West Bank (AFP) - Israeli forces arrested six members of the hardline Palestinian faction, Islamic Jihad, in operations in the occupied West Bank.

Shots were heard during Thursday's incident but there were no reports of casualties.

An Israeli military source said three suspected members of Islamic Jihad were arrested in Jenin.

Jihad said the three detainees were "armed leaders" in the movement and warned that a de facto Palestinian truce, in place since January, would not hold if Israel continued to wage a full-scale operation against the faction.

Troops also arrested another three Islamic Jihad members overnight outside the West Bank city of Ramallah, said the army and the faction.

Jiahd said two of the three were students at the West Bank's prestigious Beir Zeit University.

"The truce will not have a future if Israel continues their operations against us," the faction said in a statement.

Israel agreed earlier this year to suspend arrest operations but says it retains the right to detain suspects who are thought to pose an immediate security threat.

"We are surprised that the Palestinian Authority and Palestinian parties have remained silent over what's happening against us ... There must be a reaction against this operation," the movement said.

JERUSALEM - Israel will build an undersea barrier stretching a half-mile off the Gaza Strip to keep potential attackers from swimming to its coast after Israel withdraws troops and settlers from Gaza this summer, military officials said Friday.

The barrier's first 150 yards will consist of cement pilings buried in the sandy bottom, the Jerusalem Post newspaper reported Friday. A 6-foot-tall fence floating beneath the surface will run an additional 800 yards.

Military officials said construction of the underwater barrier would begin soon, but it would not be completed by the Gaza pullout's scheduled start in mid-August.

A Palestinian official denounced the project Friday, urging Israel to abandon its "mentality of barriers."

"The answer to all these woes of security and so on in is a meaningful peace process, is building the bridges with the Palestinians, is ending the occupation," Palestinian negotiator Saeb Erekat said.

Gaza, home to 1.3 million Palestinians, is surrounded by an Israeli fence built to keep back attackers. Israel also is building a barrier to wall off the West Bank.

"I hope the Israeli mentality of barriers will end," Erekat said. "Now they have land barriers and tomorrow sea barriers and the day after sky barriers and what else? Will they put a barrier around each Palestinian individual or house?"

In another development, Israel said Friday its dispute with the United States over its military technology sales to China would be resolved soon. On Thursday, Secretary of State Condoleezza Rice, due in Israel this weekend, acknowledged a sharp disagreement with Israel over the issue.

"We are attentive to American concerns. The issue will be solved over the next few weeks and we will work out all the points of dispute," said Raanan Gissin, an adviser to Israeli Prime Minister Ariel Sharon.

The United States fears Chinese military modernization could upset the security balance in Asia and make it more difficult for the United States to help defend Taiwan from a mainland attack.

China and Taiwan split amid civil war in 1949, and Beijing still considers the island part of its territory to be reclaimed by force if necessary.

According to Israeli officials and recent media reports, the United States has imposed a series of sanctions on the Israeli arms industry in recent months because of the sales.

U.S. envoys met Friday with officials from Sharon's office in preparation for Rice's visit, Gissin said. The envoys, David Welch and Elliot Abrams, also discussed Sharon's meeting with Palestinian leader Mahmoud Abbas, scheduled for Tuesday.

Rice, who arrives Saturday, also will meet with Israeli and Palestinian officials.

Abbas told reporters that he and Rice would discuss ways to restart peacemaking. Abbas said he also would restate Palestinian demands that Israel fulfill its obligations under a February truce agreement, including withdrawing from three more West Bank towns.

The withdrawal has stalled over Israeli demands that Palestinian militants disarm.

Separately, a Palestinian government official said Rice and Abbas also were expected to discuss Abbas' planned meeting with Sharon and coordination between Israel and the Palestinians on the Gaza pullout. Both sides are afraid that without coordination, militants and looters would fill the vacuum Israel leaves behind after 38 years.

Israel hopes the meeting will produce an agreement on what to do with evacuated settler homes, Sharon spokesman Asaf Shariv said. A new proposal would have Israel destroy the homes and the Palestinians clear the rubble in exchange for payment.

Demolishing the homes would spare settlers the sight of seeing Palestinians take over their homes. Having Palestinians clear debris could free Israeli soldiers from having to stay in Gaza for months afterward to clean up, leaving them exposed to possible attack.

The Palestinian Authority has taken no formal position, but many Cabinet ministers planning for the post-Israel era in Gaza want the homes razed.

The U.N. political chief urged Israel and the Palestinians on Friday to intensify their cooperation, saying a peaceful pullout from Gaza is crucial to future Mideast peace negotiations.

In a briefing to the U.N. Security Council, Undersecretary-General for Political Affairs Kieran Prendergast warned that renewed violence and lack of trust between Israelis and Palestinians continue to work against progress toward peace, adding that "militants on both sides remain strong and exert much influence politically." leaders meeting in Brussels, Belgium, urged Israel to halt settlement building, and in a statement Saturday called on the Palestinian Authority to demonstrate its determination to combat terrorism.

European Unio  [ send green star]

An unprecedented summit between the Palestinian and Israeli leaders has broken up in Jerusalem amid bitter arguments and recriminations over continuing violence, yielding few tangible results.

Palestinian officials at the meeting said Israeli Prime Minister Ariel Sharon began the two-hour summit with a 20-minute lecture to Palestinian president Mahmoud Abbas about his failure to halt militant attacks.

An angry Dr Abbas responded by saying he had done everything possible to bring calm to the region and rejected demands to disarm militant factions.

Although officials said agreement had been reached in principle on a number of issues, Mr Sharon linked any progress to the Palestinians' ability to "dismantle the terrorist infrastructure" of factions such as Islamic Jihad.

Palestinian Prime Minister Ahmed Qurie, who also attended the talks at Mr Sharon's west Jerusalem residence, told a post-summit news conference that "none of the issues improved or progressed up to the levels of our people's expectations".

"Overall what was presented to us was not convincing or satisfying at all," Mr Qurie added.

Dr Abbas had been expected to address the news conference, and his absence underlined the impression of failure.

Another Palestinian official said Mr Sharon began the summit with a "20-minute lecture that Palestinian efforts in the fight against terrorism were not enough".

Dr Abbas said he had "done everything" to shore up the truce and had "no mandate from the people" to disarm armed Palestinian groups.

Mr Sharon's spokesman confirmed that Israel had offered to transfer security control to the Palestinians in the West Bank towns of Bethlehem and Qalqilya provided the Palestinians act against militants - a proviso that has halted similar transfers in the past.

"We are offering (the transfers) if they will make the necessary security plan," Raanan Gissin told AFP, saying the Palestinians "know exactly what that means".

Responsibility for security in both cities should have been transferred weeks ago as part of agreements reached at the pair's previous summit in Egypt's Red Sea resort of Sharm el Sheikh on February 8.

Mr Gissin said Mr Sharon was willing to free more of the 7,000-plus Palestinians held in Israeli prisons but similarly on condition that Dr Abbas's regime "stop fugitives, put militants under control and prevent terrorist activity".

In a speech after the summit, Mr Sharon demanded a "total end to terrorism" for progress on an internationally drafted peace plan known as the roadmap which targets the creation of a Palestinian state alongside a secure Israel.

"We want to make progress with the Palestinians so we can implement the roadmap but that will not be possible until there is a complete end to terrorist attacks," said Mr Sharon.

The sour atmosphere at the summit - the first time that top-level leaders from the two sides had met in the holy city - was in stark contrast to the last meeting, when both men declared an end to hostilities.

Dr Abbas had managed to persuade militant factions to call a de facto cease fire at the start of the year, but the quiet has been unravelling in recent days.

In a highly embarrassing incident for Dr Abbas, a Gaza woman was arrested on Monday allegedly on her way to bomb a hospital on behalf of a faction linked to his Fatah movement.