Annan called for the establishment of a Palestinian state, saying that was the solution for the problems in the region.

Earlier, Annan met with Prime Minister Ehud Olmert in Jerusalem.

Annan noted in a press conference in Ramallah that he made his opinion clear during his meetings in Israel.

Beyond maintaining life a way of life must also be maintained, he said, adding that the blockade on Gaza must be lifted and the crossings must be opened. Israel must not only allow goods in, but also allow Palestinians to export, he said.

The UN secretary-general expressed his hope that Olmert and Abbas will meet soon to discuss the issues standing between Israel and the Palestinian Authority.

Before the press conference began, dozens of family members of Palestinian prisoners jailed in Israel waited for Annan at the Muqataa area and told him about their loved ones, demanding that he quickly work for their release.

Annan is aware of the fact that in the past few days, during his visits to Lebanon and Israel, he was mainly asked to refer to the issue of the war in Lebanon , but stressed that in light of this situation "we must not forget the suffering of the Palestinian people."

He made it clear that he has been exerting many efforts in a bid to halt the Israeli blockade on the PA, open the crossings and suspend the military operation in the Strip, but he also called on Palestinians to halt the firing of Qassam rockets and release kidnapped soldier Gilad Shalit

If there are good intentions, a way to solve the solution can be found, Annan said. He added that in addition to Shalit, the senior Palestinian officials and ministers who have been arrested by Israel in recent weeks must also be released.

Addressing the intra-Palestinian struggles between Fatah and Hamas, Annan voiced his support for the efforts to reach a unity government and said that "this is a very important process."

"If the Palestinians can unite around a common, realistic program and if it can help bring the security situation under control, it would be a very positive development indeed and the United Nations will do whatever it can to support you," he added.

Abbas: Our prisoners are as important as Shalit

President Abbas said that he and Annan had discussed the situation in the territories, and thanked the UN chief for finding the time to visit the PA at such a difficulty period "in light of Israel's policy of destruction, killing and collective punishment."

He demanded that efforts be exerted for the release of the senior Palestinian officials jailed in Israel and in order to solve the problem of tens of thousands of Palestinians jailed in Israel.

"Just like Gilad Shalit is important for the people in Israel, our prisoners are very important to the Palestinian people," he said. "This is a very painful political and humane issue and we must work to solve it."

"We presented Annan with the efforts we are putting into the establishment of a Palestinian unity government which will be able to put an end to the siege imposed on us, work for a truce and bring the Gilad Shalit affair to an end," Abbas added.

He expressed his hope that the efforts to establish a unity government will bear fruit as soon as possible.

Before his meeting with Annan, Abbas appeared before hundreds of Palestinian government workers and stressed that their livelihood came before democracy, hinting to the people's situation during the era of Hamas (which was elected in democratic elections.)

Hamas officials said that the struggles and strikes carried out by the workers were part of the political game aimed at undermining the recent election results.

Eight died in the Shejaiya neighbourhood of Gaza City, where Israeli soldiers have been operating since late Saturday in the latest thrust of a wider assault designed to retrieve a captured soldier and fight militants.

They included a 14-year-old boy shot in the chest, two men in their 30s also shot and five others who died from tank fire, medical officials said.

Abbas "vigorously denounced Israeli aggression in the occupied territories, in particular in the Shejaiya quarter" of Gaza City, the statement said.

Israel's operation on Wednesday was part of a two-month Israeli offensive in the increasingly lawless territory that has targeted militants but killed scores of civilians and left Gaza plagued with power shortages after its power plant was bombed.

Although Palestinian medical sources said most of those killed on Wednesday were civilians, the Israeli army said its troops only opened fire in response to attacks, admitting that forces were coming under heavy attack.

"I know of four different incidents in which gunmen either fired anti-tank missiles or they were approaching the forces," a spokeswoman told AFP.

She said troops were operating in Shejaiya to "destroy terror infrastructure" and that everything the military did in the
Gaza Strip is to create the right conditions for the return of Corporal Gilad Shalit.

Wednesday's deaths bring to 19 the number of Palestinians killed in Shejaiya since Israeli tanks and troops rolled in on Saturday.

At least 204 Palestinians and one Israeli soldier have been killed in Gaza since June 28, when Israel launched its offensive to stop rocket attacks and recover the missing Shalit, captured three days earlier.

Annan, in the West Bank on the third leg of a major Middle East tour, called for Israel to stop its offensive, "all incursions" and its closure on Gaza, and demanded Palestinian militants stop firing rockets into Israel.

"Two hundred Palestinians have been killed since the end of June," Annan told a news conference with Abbas in Ramallah.

"This must stop immediately," he said. "The closure of Gaza must be lifted, the crossing points must be opened."

He also called for a "cessation" of the Qassam rockets fired by militants, and for Israel to release Palestinian parliamentarians and officials from the Hamas-led government arrested in the West Bank in late June.

"The creation of a Palestinian state living side by side with Israel is the key to solving the problems in this troubled region," he said.

Abbas, whose moderate
Fatah party is working towards a possible national unity government with the governing Islamist party Hamas, warned there could be no security until Israel ends its occupation and a Palestinian state emerges.

"Continued occupation of the Arab and Palestinian territories will not achieve peace," he said.

The Palestinian leader earlier renewed calls for militants to stop firing rockets into Israel, warning that such missiles were sowing "death and destruction" for the Palestinians.

Five Israelis have died as a result of homemade rockets fired from Gaza since the start of the second Palestinian uprising in September 2000, with most of the missiles causing property damage or landing in open spaces.

Back in Gaza, the Israeli army said it had discovered a large tunnel, 13 metres (yards) deep and 150 metres long, running from a house in Shejaiya towards the Karni crossing with Israel, and released photographs.

"The tunnel was meant to be used for an attack on the terminal," a spokesman said, adding that planned strikes were the reason why the export-import terminal between Gaza and Israel had been closed in recent months.

In the occupied West Bank, Hossam Jaradat, the head of the armed wing of the hardline Islamic Jihad faction, died from wounds sustained during an Israeli commando operation on August 23.

Jaradat, whom Israel held responsible for numerous attacks against the Jewish state, suffered head wounds and had been in critical condition.

"In recent months, citizens of Western nations, including Americans, involved in pro-Palestinian volunteer efforts were assaulted and
injured in the Occupied Territories by Israeli settlers and harassed by the (Israeli army). Those taking part in demonstrations, nonviolent resistance, and direct action are advised to cease such activity for their own safety," it said.

The department said security has improved in northern Israel , as a ceasefire seems to be preventing rocket firing from Hizbullah .

"While the cessation of hostilities largely has been honored by both sides, the situation remains tense and a possible resumption of sporadic violence cannot be ruled out," the warning said.

'Conditions of lawlessness'

It cited security problems for Americans in Gaza and the West Bank, all territories controlled by the Palestinians.

"Violent demonstrations and armed conflicts between supporters of the Hamas and Fatah factions, and clashes between the Israeli army and Palestinian militants have increased in the Gaza Strip and the West Bank," it said.

"Overall conditions of lawlessness prevail in the Gaza Strip, including the recent kidnapping of journalists. Areas of violent conflict shift rapidly and unpredictably," The State Department said.

Fox News correspondent Steve Centanni from Washington, DC and his cameraman Olaf Wiig of New Zealand were freed by Palestinian gunmen on Sunday after being held captive for two weeks in the Gaza Strip.

Dr. Hasanen added that eight residents were injured, due to the intense and violent shelling which targeted residents' houses, and ambulances and medics could not get to the injured people.

Israeli tanks and war plans are still heavily shelling the area, according to local sources. The death toll, including the four killed in the Gaza strip since Saturday, reached 17 residents, 13 of them civilians.

Earlier on Wednesday at dawn, one resident was shot and killed by Israeli military fire near the evacuated settlement of Doughit, near Beit Lahia, in the northern part of the Gaza Strip.

The resident was identified as Husam Abu Rokba, 24. Relatives of Abu Rokba stated that he was mentally challenged.

Medical sources said that Qufaisha died after a brief exchange of fire with the troops. Four others were moderately wounded. To the assassination of its leader, the al-Aqsa Brigades vowed on Thursday to respond with "several suicide attacks deep inside Israel".

A spokesman of the brigades in West Bank, who identified himself as Abu Udai, said that "our operations will be carried out inside Israel in response to the assassination of Qufaisha," vowing that "we will show you (the Israelis) painful strikes." Earlier on Thursday, Israeli troops pulled out of the Shijaiya district in eastern Gaza, after six days of fighting in the area, which had left 20 Palestinians killed, including three children and nine civilians.

An Israeli army spokesman told Israel Radio that the Israeli soldiers during the ground operation discovered two underground tunnels used by militants to infiltrate and carry out attacks against Israel.

Israel has killed more than 200 Palestinians, about half of them civilians, during its offensive in Gaza after the abduction of an Israeli soldier in late June by Palestinian militants. Israel had pulled troops and settlers out of Gaza last year after 38 years of occupation.

On the same day, Palestinian militant groups claimed responsibility for firing more than 10 homemade rockets from northern Gaza Strip to the southern Israeli town of Sderout. The Israeli army spokesman said that some of the rockets hit constructions in the town, adding that several Israeli civilians were treated after being shocked and panicked by the attacks.

She pointed to closed businesses, loss of salary and the tremendous toll on self-employed people, who are looking at getting much less government compensation than what they lost in income. Additionally, she said, many recent hires lost their jobs when businesses closed during the attacks and now find that they are still unemployed.

Prime Minister Ehud Olmert responded to the harsh criticism contained in the poverty report by announcing Wednesday night that he would name a new welfare minister by the end of the week. Olmert had been saving the post to be used in enticing United Torah Judaism to join the government. Tensions between UTJ and the coalition have continued to run high, however, and party representatives said they were no nearer to joining the government than they were six months ago.

Knesset rumors pointed to Minister of Jerusalem Affairs Ya'akov Edri (Kadima) as the top candidate for the post.

Minister and Industry, Trade and Labor Minister Eli Yishai (Shas) said, "I will fight over [social welfare programs] in the 2007 budget. That budget will reflect a genuine war on poverty and not place the hungry child as a secondary priority, behind the fighter jet... You can't put poverty in the freezer."

Defense Minister Amir Peretz (Labor) said, "The financial demands of the Defense Ministry do not come, and will never come, at the expense of resources to alleviate the class inequalities in Israeli society."

"The data reported in the report expose how many people in Israeli society are suffering and how great the injustice is. Nevertheless, it is important to remember that the current government rearranged its priorities and implemented a number of activities that were not covered by this most recent report," he said.

MK Shelly Yacimovich (Labor), who heads the Knesset's Committee on the Rights of the Child and is a member of the Finance Committee, said, "Our children's condition worsens every year. Due to the brutal, extreme cut in child allowances, Israel ranks as one of the countries with the lowest stipends for children.

"The data in [the poverty report] indicate that empty slogans about moving people from living on allowances to finding jobs aren't enough. The labor market has turned into a slave market and work-weary parents, especially single mothers who are sole providers, work hard and are being exploited, just to raise poor children."

MK Nadia Hilu (Labor) said, "How many slaps in the face can the weak population take? This may lead to a social intifada."

Witnesses said a man jumped over the fence surrounding the compound and entered a car park around 2:45 p.m. local time. He shouted in Arabic that he would kill himself unless he was granted asylum.

Witnesses said he was holding a gun to his head.

Police are negotiating with the man, who has no hostages and hasn't fired any shots. All embassy employees are out of the building.

Israeli police couldn't respond until embassy staff called for them because the embassy grounds are considered British territory.

The embassy, on the Tel Aviv seafront, is ringed by a fence, and visitors are normally screened by security guards at the gate.