An Israeli aircraft fired a missile at a car carrying Palestinian militants near Gaza City, causing a massive explosion that ripped the vehicle apart. The army said it targeted militants from a radical group called the Popular Resistance Committees, who were on their way to carry out an attack against Israel. The group promised revenge.

Israel has launched a series of air strikes against militants since a Palestinian suicide bomber killed six Israelis at a mall in the coastal town of Netanya last week.

The air raid came hours after Israel announced that it is constructing hundreds of new homes in West Bank settlements. The construction violates a key provision of the U.S.-backed "road map" peace plan that calls for a settlement freeze.

Israeli spokesman Mark Regev told VOA that Israel will strengthen the big settlement blocs near Jerusalem and Tel Aviv.

"Israel's position is clear, that when we get to final status negotiations with the Palestinians, that the large settlement blocs will always be part of Israel," he said.

The Palestinians say there can be no peace until settlements are dismantled and Israel returns all of the West Bank that was captured during the Six Day War in 1967. Mr. Regev says that won't happen.

"We're ready for peace," he said. "We're ready for compromise, but the Palestinians have to do some compromising too."

The American magazine Newsweek reported that Prime Minister Ariel Sharon is prepared to give up 90 percent of the West Bank and parts of Jerusalem for the creation of a Palestinian state. Newsweek quoted one of Mr. Sharon's advisors.

With Israel heading to early elections in March, the report set off an uproar. Mr. Sharon quickly denied it, saying, "Jerusalem will remain the united capital of Israel forever."

But the prime minister's nationalist opponents are outraged. They say the reason he quit his hawkish Likud party three weeks ago is because he plans to give the land of Israel away.