Abbas cancelled Meeting with Sharon

"Abu Mazen cancelled the meeting because he sees no serious sign from the Israelis about implementing the roadmap," the Palestinian source said on condition of anonymity, saying a central issue was Israel’s reluctance to free a significant number of Palestinian prisoners.

The meeting, which was due to take place Wednesday, was to have been the third bilateral meeting between the two prime ministers who last met in Jerusalem on July 20 before embarking on separate visits to Washington for talks with US President George W. Bush.

"The Israelis would only use this event to exploit the release of only 400 or so prisoners, most of whom had already finished their sentences," he said.

Earlier, Israel army radio said both sides had reasons for cancelling the meeting but it was not immediately clear from the report who actually called for the meeting to be cancelled.

Israel was leaning towards cancelling the meeting after a shooting ambush on Sunday night south of Jerusalem, the radio said.

For their part, the Palestinians were also disposed to cancel the meeting over Israel’s failure to agree a greater release of Palestinian prisoners on Sunday.

Meanwhile in Washington, the senior US official said the plan to punish Israel would withhold US loan guarantees in the amount the Jewish state spends on the barrier east of the 1967 Green Line division between Israel and the West Bank.

"It is something that is being looked at," the official told AFP on condition of anonymity.

"Real questions have been raised about the fence and we’re discussing how we should express our concerns in a concrete way."

The official said the proposal was still being debated by the White House and the State Department and that no decision on it would likely be made before September.

Shortly after the official spoke, Secretary of State Colin Powell stressed that US concerns about the construction of the wall, which the Palestinians claim is an attempt to establish the boundaries of their future state outside the negotiating process, were real.

Israeli Troops Arrest Dozens of Peace Activists

Israeli troops stormed a house in the West Bank and arrested 40 opponents of its controversial security wall, 34 of them foreigners of the International Solidarity Movement, some of the detainees said.

The protestors were occupying the house in Mashah, near the town of Qalqiliya, in a bid to stop the Israelis bulldozing the Palestinian owner’s garden to build the fence cutting off the West Bank from Israel.

They told that the troops had arrested 34 foreigners and six Israelis and put them on two buses which were taking them to an unknown destination.

The Palestinians and rights groups charge that the barrier, which consists either of a strong fence or a concrete wall, is an attempt by Israel to annex the West Bank’s "bread-basket" and unilaterally determine the borders of a future Palestinian state.

The ISM has been leading an aggressive campaign in recent weeks to protest against the fence as well as roadblocks hampering freedom of movement in the West Bank.

US activist Rachel Corrie was crushed to death by an Israeli army bulldozer in the Gaza Strip town of Rafah in March and fellow ISM member Tom Hurndall from the UK was declared clinically dead after being shot in the same area a month later.