Israelis celebrated 53 years of independence on Thursday locked in bloody conflict with Palestinians fighting for the birth of their own state.
Diplomacy, which has taken a back seat in the confrontation since Israelis chose hardliner Ariel Sharon as prime minister in February, showed signs of flickering into life.
Israeli Foreign Minister Shimon Peres, who is due in Washington next week, will visit Cairo and possibly Amman on Sunday to discuss an Egyptian-Jordanian proposal to halt the bloodletting, officials at his office said.
A government source said Israel had at least two reservations on the proposal: it would not accept a call for a blanket freeze on settlement building in the occupied West Bank and Gaza Strip or for peace talks to resume at the point where they left off under Sharon's predecessor, Ehud Barak.
Palestinian President Yasser Arafat has endorsed the plan, which calls for an end to violence, confidence-building measures and the resumption of Israeli-Palestinian talks.
U.S. President George W. Bush telephoned Sharon on Thursday to discuss the peacemaking impasse, a White House spokesman said. He said Bush believes "the only way to secure a lasting peace in the Middle East is for the violence first to stop".
Sharon told the Jerusalem Post newspaper in an interview to be published on Friday that he opposed any renewal of peace talks until the violence ceased completely.
"My position is to bring about an end to the violence, not a decline," he told the English-language newspaper.
In the latest bloodshed, Israeli troops shot dead a Palestinian farmer in Gaza on Thursday, Palestinian police said.
They said Atef Wahdan, 40, was working in a citrus grove near the Al-Bureij refugee camp when troops opened fire from a tank on the other side of an Israeli-Gaza border fence.
An Israeli army spokesman said soldiers fired warning shots when a Palestinian man crossed the border fence and headed into Israel. They then shot him when he did not stop.
A Palestinian health official said a 20-year-old man died in a Cairo hospital of wounds sustained earlier in the month.
FUNERAL IN GAZA
Tens of thousands of Palestinians flocked to the funeral of four fighters killed on Wednesday night by an explosion in the southern Gaza Strip, a Reuters correspondent reported.
Angry mourners marched through the town of Rafah on the border with Egypt. Masked gunmen shot in the air and activists of the militant Hamas group vowed to retaliate by sending six suicide bombers into the heart of Israel.
The four men belonged to Arafat's Fatah faction and a newly formed armed group, known as the Popular Resistance Committees. Palestinian officials said Israel was behind the blast. The Israeli army said it knew nothing of the incident.
The new deaths brought the toll in a seven-month-old Palestinian uprising against Israeli occupation to at least 393 Palestinians, 74 Israelis and 13 Israeli Arabs.
Israel's Independence Day celebrations began at nightfall on Wednesday, but the mood was dampened by fear of bomb attacks.
Israeli soldiers guarded bus stations and police cars were posted at flag-lined intersections in Jerusalem. Some Israelis said they would celebrate privately but avoid public events.
In a grim Independence Day speech, Israeli President Moshe Katzav urged his compatriots to unite and stand firm to deter enemies tempted to defeat Israel by "war or terrorism".
Army chief Shaul Mofaz warned Israelis to brace for an extended period of fighting.
"It is not a question of days, or weeks and not even months," he said in a television interview.
Israeli radios reported army commanders would hold talks with Palestinian counterparts on Friday as part of a series of talks aimed at coordinating efforts to head off further unrest.
BUSH AWAITS END TO VIOLENCE
In an interview with Reuters on Wednesday, Bush said the United States would work towards achieving political dialogue and eventual peace once violence had subsided "significantly".
"I also know full well that peace is not going to be possible until we break this cycle of violence," Bush said.
Lebanese Prime Minister Rafik al-Hariri, the fourth Middle Eastern leader to be hosted at the White House since Bush took office, urged the administration to work for Middle East peace.
U.S. Secretary of State Colin Powell told him U.S. diplomats were striving quietly to reduce Israeli-Palestinian violence as a step toward negotiating a peace based on U.N. resolutions.
"We have a number of things working right now quietly to get this serious situation stabilised," Powell said. The CIA has been organising Israeli-Palestinian security cooperation talks.