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Ramallah, West Bank – Israeli troops staged a rare incursion into Ramallah on Thursday, bulldozing cars and vegetable stands near the central square as they engaged gunmen and stone- throwing residents in a chaotic two-hour battle that left four Palestinians dead.

The raid, aimed at rescuing a team of undercover Israeli agents, was a diplomatic embarrassment for Israeli Prime Minister Ehud Olmert as he headed to Egypt for talks with President Hosni Mubarak on how to revive peace negotiations between Israel and the Palestinians.

And it contributed to one of the bloodiest days in weeks for the Palestinians, who also counted six deaths in factional fighting in the Gaza Strip. The dead included a senior security officer of the Fatah movement killed during a dramatic day-long siege of his house by a Hamas paramilitary force.

At a testy news conference in the Egyptian resort of Sharm el-Sheik, with Olmert at his side, Mubarak said he had used their meeting to express “indignation” over the Israeli raid and to demand that Israel and the Palestinians “refrain from all practices that would put obstacles in the road to peace.”

Olmert responded: “I am sorry if innocent people were hurt.”

He said the raid had been meant to protect Israel from terrorist attacks but “things developed in a way that could not have been foreseen.”

The two leaders, meeting for only the second time, discussed confidence-building measures that might pave the way for a resumption of substantive Israeli-Palestinian peace talks that collapsed six years ago.

But they spent much of their joint news conference sparring. They announced no progress toward a long-expected swap of a captured Israeli soldier for hundreds of Palestinian prisoners. And they failed to agree on Egypt’s proposal to hold a peace summit involving Mubarak, Olmert, King Abdullah II of Jordan and Palestinian Authority President Mahmoud Abbas.

The violence in Ramallah underscored the difficulty of another item on the two leaders’ list of goals: extending an often-violated Israeli-Palestinian cease-fire in the Gaza Strip to the West Bank.

Abbas, who met with Olmert on Dec. 23 to begin discussing steps toward full-fledged negotiations, accused Israel of making false promises of peace. He demanded $5 million in damages for the Ramallah raid, which also left 20 Palestinians hurt.

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