RAMALLAH, West Bank - Israeli tanks and helicopters shelled a heavily fortified Palestinian security headquarters in an all-night assault yesterday. Fighting raged outside Bethlehem's Church of the Nativity, and Israel's prime minister proposed exile for Palestinian leader Yasser Arafat.

Nine Palestinians and an Israeli soldier were killed in Tuesday's violence. By nightfall yesterday, most of the about 400 Palestinians trapped in the compound of West Bank security chief Jibril Rajoub surrendered to Israeli troops, in a deal brokered by U.S. and European officials. About eight men remained inside. Israel had assaulted the compound saying top militants were inside, a claim denied by Rajoub. In Bethlehem, Israeli helicopter gunships hovering over Manger Square exchanged fire with Palestinian gunmen near the Church of the Nativity, built over the grotto where tradition says Jesus was born. Several armed men sought refuge in the shrine. Yesterday's fighting came as Israel widened its 5-day-old military offensive, "Operation Protective Wall," launched to uproot militants blamed for a string of terror attacks on Israelis. Prime Minister Ariel Sharon said yesterday he has proposed that European Union envoy Miguel Moratinos or other diplomats fly Arafat into exile, raising the idea in public for the first time.

"I told him (Moratinos), if they would like, they will fly with a helicopter and will take him (Arafat) from here," Sharon said during a tour of West Bank army bases, in remarks carried by Israel Radio. Arafat "will not be able to return." Sharon said such a step would require Cabinet approval.

Arafat has been confined in his offices by Israeli troops holding his Ramallah headquarters since Friday. Palestinian Planning Minister Nabil Shaath said that Arafat "will not leave Palestine."

Secretary of State Colin Powell expressed opposition to exiling Arafat, saying the Palestinian leader could "conduct the same kind of activities" from a different place. "Until he decides he's going to leave the country, it seems we need to work with him where he is," Powell told ABC's "Good Morning America."

He advised Sharon to "take care" in his offensive and said eventually a political solution would have to be found.

Israeli Foreign Minister Shimon Peres said the offensive would last three to four weeks, the first senior official to give a timeframe.