The victims were named as Ahmed Loubad, 35, and Samira Doukhdar, a 25-year-old woman. Both were killed by Israeli fire in Tufah, in the north of Gaza, the Palestinian hospital sources said.

Meanwhile, three Israeli soldiers were injured when a bomb exploded in front of their tank, according to Israeli military sources, who declined to say exactly where that incident took place.

Israeli tanks also besieged Yasser Arafat's compound in the West Bank town of Ramallah late Thursday and demanded the surrender of wanted Palestinians after the suicide bomb blast on a crowded bus in Tel Aviv.

The blast, the second in 24 hours to shatter a six-week lull in attacks inside Israel, was claimed by the Islamic radical group Hamas. Even so, Israeli Prime Minister Ariel Sharon's government followed a now well-established pattern, blaming Arafat.

The army also slapped a new curfew on all West Bank cities it occupies, except Hebron, and staged two major tank raids into Palestinian land in the northern Gaza Strip, rolling up to the edge of Gaza City.

The army arrested around 20 Palestinians from Arafat's compound, but not those wanted from inside his offices, Palestinian security sources said.

They said prisoners held by Palestinian security forces were among those arrested, along with their guards, whose prefab lodgings were destroyed as Israeli tanks and bulldozers rolled into Arafat's compound.

"Israel is engaged in a long and hard battle against a cruel and abject terrorism led by Palestinian Authority chairman Yasser Arafat who has set up a terrorist coalition," Sharon's office charged in a statement.

Officials inside Arafat's headquarters said the situation was extremely tense, amid fears of a repeat of a five-week March siege also triggered by a suicide bombing.

During the overnight Israeli incursions in the Gaza Strip, troops dynamited four metal workshops in the Tufah area, according to Palestinian security cources.

Such workshops are frequently targeted by Israeli forces, which believe that arms, including mortars, are produced in them.

The army also moved into Al-Shujayiah district on the eastern edge of Gaza City, while to the north, forces later moved around two kilometres (one mile) into Palestinian land toward the towns of Beit Lahiya and Beit Hanun, Palestinian security forces said.

In Al-Shujayiah, two Palestinians were injured by Israeli helicopter fire.

Earlier Thursday, a powerful bomb went off aboard a bus on Tel Aviv's central Allenby Street, a busy shopping area full of cafes. The bus was lifted off the ground by the blast and its front mangled and blackened.

Among the 60 wounded, 10 were in serious condition, medical sources said.

Ezzedin al-Qassam Brigades, the armed wing of Hamas, said one of its militants blew himself up in the latest of a string of retaliations for a July raid that killed their leader and 16 other people, most of them children.

The bombing rocked Tel Aviv a day after the first successful suicide attack inside Israel in six weeks killed a policeman, days ahead of the second anniversary of the intifada, which has cost 2,507 lives since September 2000.

"The martyr operations will continue against the Zionists. We are defending our people. The resistance will escalate," said Abdel Aziz Rantissi, a senior Hamas political leader.

Mohammad al-Hindi, a senior leader of Islamic Jihad which claimed Wednesday's attack in the northern Israeli town of Umm el-Fahm, said the latest blast "proves that our people will not submit, however great are the murders, destruction and collective punishment" carried out by Israel.

Israeli government spokesman Avi Pazner told Nampa-AFP: "We are definitely facing a major drive by all Palestinian terrorist organisations. We will do whatever it takes to stop this new wave."

Hours earlier, Israeli police chief Shlomo Aharonishki had warned that recent weeks "had given a false impression of calm, while terrorism has not dropped its guard and there have been constant attempts to strike."

The Palestinian leadership condemned the suicide bombing and asked all Palestinian groups to do likewise.

"The Palestinian leadership condemns all attacks on civilians, be they Palestinian or Israeli," the statement said, adding that they gave "Sharon and his army more reason for killing and punishment."

US President George W. Bush "strongly" condemned the attacks and offered his condolences to the victims, while UN Secretary General Kofi Annan said he was "appalled" by the suicide bombings in Israel and called for restraint.

bur/pvh/evz

Nampa-AFP WEB story ENDS (NAMPA 200340)

World News Headlines Of The Last 48 Hours

•   UK doctors planned 'wholesale' bombing
•  Pope defends Pius XII over Holocaust
•   Le Clezio wins Nobel literature prize
•   New SA party needs strong leaders to challenge ANC
•   Dems hopeful economic crisis will secure landslide
•   Bombs aimed at police kill 10, hurt 14