Arafat was moved to another building in the compound away from the fighting and his life was not in immediate danger. "Arafat is in good spirits. He is busy on the phone to world leaders," said one of his top aides, Nabil Abu Rdainah.

Israeli forces swept into Ramallah, 15 km (nine miles) north of Jerusalem, after Israel declared Arafat its enemy and vowed to isolate him following the bloodiest suicide bombing attack since Palestinians rose up against Israeli occupation in 2000.

Close-quarter combat in a building inside the compound killed one of Arafat's bodyguards and wounded over 20, he said. Israeli troops punched their way through walls during the combat, Palestinian officials said.

Hospital officials said five Palestinians had been killed and 51 injured, seven critically, since Israeli troops rumbled into Ramallah in predawn fog, knocked down walls and took positions inside the compound.

The army said a 22-year-old lieutenant was also shot dead.

A Reuters photographer saw armored vehicles enter the compound near Arafat's offices and troops run inside, prompting heavy shooting. Israel radio said the army had captured seven buildings in the compound by 4 p.m. (6 a.m. EST).

Palestinian cabinet minister Saeb Erekat said the Israeli action amounted to a declaration of a "comprehensive war" after 18 months of low-grade conflict that has killed at least 1,112 Palestinians and 383 Israelis.

ANOTHER SUICIDE BOMBER

The Ramallah raid brought no quick success in curbing the violence. Several hours later, a woman suicide bomber blew herself up in a Jerusalem supermarket crowded ahead of the Jewish Sabbath, killing two people and wounding at least 20.

She was the second Palestinian woman to carry out a suicide attack in the uprising and it was the second suicide bombing since the start on Wednesday of the Passover holiday marking the Jews' biblical exodus from Egypt.

A Palestinian suicide bomber killed 22 Israelis celebrating the start of Passover in the seaside city of Netanya on Wednesday, the worst attack since the Palestinian revolt began.

Palestinian raids on Jewish settlements in the Palestinian territories on Thursday and Friday also killed six Israelis.

Israeli authorities were undeterred. "The aim is to destroy the terrorist network and nests in Ramallah, even in Arafat's own compound," said government spokesman Avi Pazner.

Arafat has condemned suicide bombings and vowed to arrest perpetrators. But his aides say Israeli army clampdowns in territory handed to Palestinian rule under interim peace accords make it difficult for his security services to function.

Tensions boiled over despite the emergence of an Arab plan for Middle East peace with Israel that was unanimously endorsed at an Arab summit in Beirut on Thursday and cautiously welcomed by Israeli Foreign Minister Shimon Peres.

World leaders expressed alarm at the deteriorating situation in the Middle East, with Russia criticizing Israel's measures to isolate Arafat. The European Union reaffirmed that Arafat remained a legitimate authority and its interlocutor for peace.

Crown Prince Abdullah of Saudi Arabia said he had American assurances that Arafat would not be harmed.

Despite the violence, U.S. envoy Anthony Zinni said he would stick with a faltering mission to secure a cease-fire.

FIGHTING RAGES ON

Fighting between Palestinian security forces and Israeli troops erupted as an armored bulldozer punched a hole in the outer wall of Arafat's compound and tanks launched shells at his office building, Palestinian officials said.

Aides said a bullet flew through Arafat's office, where he has been confined by the army for more than three months.

Israeli army snipers dug in on the tops of buildings and gunbattles broke out in various districts of the city of about 210,000 people, according to witnesses.

Speaking after a cabinet meeting that lasted most of the night, Israeli Prime Minister Ariel Sharon said: "Arafat, who has established a coalition of terror against Israel, is an enemy and at this point he will be isolated."

He told a televised news conference Israel intended to remove the "foundations of terror."

"We have no interest in conquering or staying in the territories," Sharon said, referring to cities and towns in the West Bank and Gaza that were handed to Palestinian administration under interim peace deals during the 1990s.

Israeli military sources said more combat reserve units had been called up as a result of Palestinian attacks.

Arafat responded defiantly, saying Palestinians would neither surrender nor give up their fight for an independent state.

"No Palestinian and no one in the Arab nation will surrender or kneel," he said in a telephone interview aired on Palestinian television. A photograph released by aides showed him taking calls in his office with a pistol on the table in front of him.

Sharon has been under pressure from right-wing members of his cabinet to step up military action and oust Arafat after a string of suicide bombings, which Palestinian militants said avenged earlier Israeli killings and raids during the conflict.