Israeli tanks pulled out of Palestinian-ruled Ramallah yesterday but remained in two other West Bank towns, despite pressure from the US as it tries to shore up its anti-terror alliance.
Israeli forces have now left four of the six Palestinian towns they entered last month after militants assassinated a cabinet minister.
But Israel still has crippling blockades on many Palestinian areas and tanks redeployed just outside Ramallah, which includes President Yasser Arafat's West Bank headquarters.
In fresh violence yesterday, an Israeli undercover unit killed Issa Dabbabsi, wanted for the killing of a Jewish settler a few years ago.
Elsewhere in the West Bank, four Palestinian civilians were wounded, two critically, during stone-throwing clashes with Israeli border police.
Earlier, Israeli soldiers killed a Palestinian taxi-driver during an exchange of fire. Hospital officials said Mohammad Kaskin (26) was shot in the back. The Israeli army said its troops opened fire after Palestinians fired three mortar shells at a Jewish settlement.
The Ramallah pull-out went ahead even though five Palestinians and an Israeli soldier died in violence on Tuesday.
Hundreds of Palestinians marched through Nablus in a funeral procession yesterday for three men killed in what the Palestinians said were execution-style killings after a gun battle. Israel said the men died in the gunfight.
Despite the violence, Israeli Foreign Minister Mr Shimon Peres, on a visit to France, told journalists: "If things continue as they should, there is a good chance of restoring the peace process."
Tanks, armoured personnel carriers and jeeps rumbled out of Ramallah under cover of darkness.
Residents, some of whom had been under curfew, stood in the wind and rain to watch the withdrawal, which took slightly over an hour. By dawn people were cleaning up. Palestinian security forces quickly took up abandoned positions. The headquarters of Mr Arafat's Force-17 was in ruins, demolished during the Israeli occupation.