Associated Press

Fearing another attack, Palestinian boys run through a cemetery next to the Preventive Security Service office, which was damaged in an Israeli army missile attack in Gaza City yesterday.

AMALLAH, West Bank - Israel used bombs and missiles yesterday to pressure Yasser Arafat to move against Palestinian militants, striking just yards from the Palestinian leader's West Bank offices and in the Gaza Strip. Two Palestinians were killed and about 150 were injured in the attacks.

The campaign stirred opposition from moderate Labor Party members of Israel's ruling coalition, who boycotted a Cabinet vote on tougher action against the Palestinians.

Prime Minister Ariel Sharon's government said it was sending a stern warning to the Palestinian leader that there would be even harsher reprisals if he did not crack down on militants who have been attacking Israelis.

"The purpose was to send a clear military message .... 'Friends, we've had enough, take the responsibility that you have and stop the terrorism," said the Israeli army spokesman, Brig. Gen. Ron Kitrey.

The air attacks came in response to weekend bombings and shooting attacks on Israelis by Islamic militants that killed 26 people and wounded nearly 200. Kitrey said yesterday's raids targeted Palestinian Authority installations because the Islamic militants' headquarters "are secret and cannot be hit in this type of attack."

Arafat, speaking to CNN after the airstrike on his Ramallah compound, accused Sharon of trying to undermine his efforts to combat terrorism. The Palestinian Authority has rounded up some 130 members of the militant Islamic Jihad and Hamas groups since the weekend, and Palestinian officials said the sweep would continue despite the Israeli raids.

"They (the Israelis) don't want me to succeed and for this he (Sharon) is escalating his military activities against our people, against our towns, against our cities, against our establishments," Arafat said. "He doesn't want a peace process to start."

Israel has dismissed the arrest sweeps as window dressing, saying Arafat was only targeting secondary activists, not the real planners of terror attacks.

The deadliest Israeli strike came in Gaza City, where F-16 warplanes dropped three bombs that flattened a building of the Preventive Security Service in a residential neighborhood. The blasts sent debris and shrapnel flying in a wide radius, and hundreds of panicked school children ran for cover, engulfed by a cloud of smoke.

Doctors said a 15-year-old boy and a member of the Preventive Security Service were killed in the attack, and 150 bystanders were injured, including dozens of youngsters.

"Sharon has declared war on us. God help us," screamed 13-year-old Ayman Abdul Jawad as he ran in the street with friends, blood on his head.

The Palestinian Health Ministry said 38 people were still hospitalized several hours after the attacks, and five were in serious condition.

Eight Palestinian security offices were hit - four in the West Bank and four in Gaza. Three missiles hit 50 yards from Arafat's office in his government compound in the West Bank town of Ramallah. Arafat aide Ahmed Abdel

Rahman said the Palestinian leader was rushed to an underground shelter moments before the airstrike, after aides spotted attack helicopters in the sky.

Israel said Arafat was not the target of the missile attack. "We have stated publicly that we do not intend to harm him personally," said a Sharon adviser, Danny Ayalon. "But since he is responsible for the wave of terrorism which has been going on, we had to hit something close to him personally."

The Israeli reprisals have effectively confined Arafat to Ramallah. Israeli missiles have destroyed Arafat's three helicopters, and army bulldozers have torn up the landing strip at Gaza International Airport. Arafat cannot travel by land since Israeli troops have been encircling all Palestinian towns, barring residents from entering or leaving. Israeli officials said they want to force Arafat to remain in place to deal with the crisis, noting that in the past he often slipped away for world travel at a time when he should be attending to burning issues at home.

After a stormy overnight meeting, the Israeli Cabinet decided early yesterday to declare Arafat's government a supporter of terrorism. Sharon aides said the declaration was intended to step up pressure on Arafat, but should not be seen as the opening signal in an all-out campaign to topple the Palestinian Authority.

The government also singled out two organizations affiliated with the Palestinian leader and blamed for the deaths of scores of Israelis - the Tanzim militia and Force 17, a branch of the Palestinian security forces. Three Force 17 buildings, two in Gaza and one in the West Bank, were among the offices hit by Israeli missiles yesterday.

The decision prompted ministers from the moderate Labor Party to walk out of the Cabinet meeting in protest, and some Labor leaders hinted the party might quit the coalition government. Labor's parliament members were to discuss the party's fate in a special meeting today.

The Maariv daily wrote in an editorial that Sharon should have allowed Arafat a few days' grace "to prove he's serious this time .. because this time he may understand he has no room for maneuver left."