Leaders of Palestinian President Yasser Arafat's Fatah movement on Saturday approved a new cabinet in a step toward ending political turmoil that has helped stall a U.S.-backed plan for peace with Israel.

The cabinet list was not finalized, however, as Prime Minister-designate Ahmed Qurie and the Palestine Liberation Organization's executive committee, led by Arafat, met later on Saturday without coming to any conclusions.

The PLO executive committee was due to meet again to discuss the list before submitting it to parliament for final approval, expected in the coming week.

Fatah officials said Qurie had appointed Nasser Youssef, an Arafat loyalist, as interior minister, replacing the U.S.-backed Mohammed Dahlan. They said Youssef would be "empowered" to impose security to end what outgoing Prime Minister Mahmoud Abbas has bemoaned as the "armed chaos" of militant factions.

But given Qurie and Youssef's pedigree as longtime Arafat allies, the United States -- which joined Israel in trying to sideline the Palestinian president -- has voiced doubt about the new administration's leeway to succeed where Abbas failed.

Abbas resigned over what he called obstruction by Arafat -- who denies charges of fomenting violence -- and continued Israel army strikes against militants.

At least two key members of the outgoing cabinet favored by Washington -- Finance Minister Salam Fayyad and Foreign Minister Nabil Shaath -- kept their posts in a preliminary list of 23 members of the new government, officials said.

There were almost a dozen new faces, including a supporter of main Islamist militant group Hamas and two from leftist secular factions with reservations about peacemaking with Israel.

Qurie tried to lure actual officials from Hamas and the militant Islamic Jihad into the cabinet to maximise its popular backing, but they spurned him in favor of a continued struggle against Israel.

HIGH ISRAELI ALERT ON HOLIDAY

The Palestinian cabinet took shape with Israel on high alert for possible Palestinian attacks over its New Year holiday weekend, coinciding with the third anniversary of a Palestinian uprising launched in the West Bank and Gaza Strip.

A member of Islamic Jihad, a faction hostile to co-existence with Israel, was killed in the southern Gaza city of Rafah on Saturday when a bomb blew up as he was assembling it, according to Palestinians. Another militant was wounded in the blast.

The "road map" peace plan for Palestinian statehood on land occupied by Israel in the 1967 Middle East war has been stymied since its launch in June by intractable tit-for-tat bloodshed and an Arafat-Abbas power struggle.

The U.S.-led "Quartet" of mediators on Friday put the onus on Palestinians to save the plan by subduing militants while also demanding Israel stop expanding settlements on occupied Palestinian lands they are seeking for a state.

But the cycle of violence bedevilling diplomacy was likely to continue after a Palestinian gunman shot dead two settlers, including a seven-month-old girl on Friday night, as Israelis began celebrating the Jewish New Year. Israel vowed further military strikes against militants.

Israel clamped a general ban on Palestinian travel within and out of the West Bank and Gaza, except for humanitarian reasons, until the New Year ends at sunset on Sunday.

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