Israel's pullout from a West Bank town may allow for talks between Palestinian President Mr Yasser Arafat and Israeli Foreign Minister Mr Shimon Peres.
An Israeli political source said today talks between senior officials from both sides were under way to prepare the agenda for a possible meeting in the region as early as next week.
Israeli media said the two leaders would try to build on diplomatic efforts that led to the withdrawal yesterday of Israeli tanks and troops from Beit Jala, two days after the incursion into the Palestinian-ruled town.
Israel said it pulled out after Mr Arafat agreed to stop Palestinian gunmen from shooting at the nearby settlement of Gilo.
"The peace is being kept so far and there is a commitment by Mr Arafat to maintain it, Israeli Defence Minister Mr Binyamin Ben-Eliezer said more than 12 hours after the withdrawal, which Palestinian fighters hailed as their victory.
In the West Bank city of Ramallah, an explosion damaged the house of the Democratic Front for the Liberation of Palestine's (DFLP) most senior leader, Mr Qais Samurai. He was not home at the time, Palestinian officials said.
The DFLP group accused Israel of trying to assassinate Mr Samurai. The group had claimed responsibility for an attack by Palestinian gunmen on an Israeli army base in Gaza last Saturday in which three soldiers were killed.