HEADLINE: Arafat refuses to give up fugitives. IDF tightens hold around Mukata

BODY: Isolated and confined in the only building left standing in the dust and rubble of his Mukata government complex in Ramallah, a defiant Yasser Arafat told reporters yesterday he refuses to surrender to Israel's demand to hand over some 50 fugitives inside the building with him.

Prime Minister Ariel Sharon, Foreign Minister Shimon Peres, and Defense Minister Binyamin Ben-Eliezer each spoke with top Palestinian officials over the weekend and rejected their requests to ease the siege of Arafat's compound.

The operation, code named "A Matter of Time," was launched on Thursday night in response to the Tel Aviv suicide bombing attack that killed six and wounded scores. It is aimed at isolating the Palestinian leader and destroying the remaining symbols of the Palestinian leadership, which Israel claims is irrelevant.

Late last night, the IDF began demolishing a the five- story operations building standing next to Arafat's office. The IDF used loudspeakers to tell an estimated 200 people holed up inside the compound that they must evacuate because a large explosion was going to take place. A military official said the message was intended to persuade them to leave quickly, with as few mishaps as possible. Israel Radio reported that the Palestinians inside, including Arafat and some 50 men wanted by Israel, have made no signs of obeying the IDF demands. The radio reported that the IDF strategy was to only leave standing the building that Arafat was occupying.

The Palestinian Legislative Council Speaker Ahmed Qurei called Sharon and asked him to ease Arafat's conditions. Qurei told Sharon that Israel needs Arafat, because he is the only Palestinian with whom Israel could conduct negotiations.

Sharon replied that the siege would continue until some 50 wanted terrorists inside compound are turned over to Israel. He said Arafat has to end all aid to the terrorist groups and that he could not be a partner in negotiations.

"We are ready for peace but not for capitulation and we will not give up Jerusalem or a grain of our soil, which are guaranteed to use by international law," Arafat said in a statement to the WAFA agency.

Israel has declared it has no intention of harming the Palestinian leader it holds directly responsible for the recent terrorist attacks that have claimed nine Israeli lives, but demands that the 50 fugitives involved in terrorist activities "with blood on their hands" surrender to the troops outside.

So far 32 Palestinians, none of whom appears on the list of fugitives, have surrendered and have been taken for questioning by security forces, with some already being released. Israeli security officials estimate that there are approximately 200 people inside the office building with Arafat, and noted that the electricity and water supply is working.

"We estimate they have food but in talks between Israeli and Palestinian officials since the beginning of the operation, it was made clear that if they require food and medication it will be supplied to them. In addition army medical teams are posted outside the building and ready to check anyone that leaves it," one official said.

Troops were confronted with slight resistance when gunfire erupted between armed Palestinians and soldiers. Two Force 17 members were killed.

By yesterday morning IDF explosives had destroyed four of the five main buildings used as officers' and living quarters, the main meeting room where the Palestinian Legislative Council convened 10 days ago, and IDF bulldozers had demolished 11 caravans.

Security forces found over 60 Kalashnikov assault rifles and sniper weapons, ammunition clips, and hundreds of bullets, pipe bombs, and telescopic sites in the meeting hall before it was destroyed. Bulldozers began to demolish the western wing where the offices of the governor of Ramallah were once located.

Yesterday morning a tank shell landed on the floor above the office where Arafat sat, showering him with dust but causing no harm. A trench and barbed wire were reportedly placed by soldiers around the remaining structure where the Palestinian leader is confined.

Soldiers with megaphones periodically called on those inside to leave the building, adding that those not related to terrorist activities will be free to return home.

In addition, the IDF imposed curfews and a closure on the West Bank and tightened blockades around the major towns and cities.

Reports from some of the Palestinians inside the building with Arafat claimed that the IDF had demolished water pipes and the main kitchen, but said there was enough water in rooftop tanks and food to last for a few more days. The Palestinian leader was confined to the second floor offices after a tank shell destroyed the stairs leading to the ground floor and the walkway that connected his building to the adjacent wing was demolished, isolating him from some of his guards in the other wing.

By last night, the IDF was breaking through one of the walls of the compound, Palestinian sources said. They warned that the building was likely to collapse.

Peres received calls from European Union foreign policy chief Javier Solana, Danish Foreign Minister Per Stig Moeller, whose country holds the EU rotating presidency, and Russian Foreign Minister Igor Ivanov.

Arafat's deputy Muhammad Abbas reportedly also called Peres and Ben-Eliezer to ask them to pressure Sharon. According to Palestinian reports, Ben-Eliezer rejected a request by Abbas to visit Arafat.

"We cannot tolerate a situation in which anyone can come and kill us," Peres told Solana. "This IDF operation is taking place because the Palestinians lack anyone taking responsibility for eliminating acts of terror."

Peres said Arafat has not given real authority to PA Interior Minister Abdel Razal al-Yahya and called upon Arafat to appoint a prime minister who would be responsible for day-to-day issues, including security. He said the only reason Israel had 40 days of relative quiet was the IDF's presence in Palestinian cities.

Moeller complained to Peres that Israel has an "obsession with Arafat" that has delayed progress in Palestinian reforms, including the appointment of a prime minister.

US National Security Advisor Condoleezza Rice called Sharon on Friday urging him not to harm Arafat, and US Ambassador Daniel Kurzer was supposed to meet with Sharon last night, Palestinian sources said.

Palestinians were said to be disappointed by the UN Security Council decision to delay discussions of the Israeli siege of Arafat till tomorrow.

Senior diplomatic sources in Jerusalem said that even though Hamas perpetrated Thursday's attack in Tel Aviv, Arafat bears full responsibility, because US President George W. Bush declared after September 11 that countries will be held responsible for terror emanating from their borders.

"The PA can't blame Hamas, because they did nothing to stop it," one official said. "If they are the leaders of the Palestinians people which they claim to be, they have to take care of it. They can't have it both ways."

Ben-Eliezer spoke with Jordanian Foreign Minister Marwan Muasher and assured him that Israel has no intention of harming Arafat, but the operation would continue until the fugitives give themselves up.

Speaking on Channel 2 on Friday, Ben-Eliezer said "tactically speaking it would be a mistake to expel him." In an interview on Channel 1, he said: "We don't intend to harm him physically, but to ensure he is isolated from his people... He is the main obstacle."