Israeli military authorities have ordered more than 1.25-million residents of the occupied West Bank and Gaza Strip to remain in their homes.
The move was an attempt to curtail Palestinian protests over the massacre of Muslim worshipers in Hebron's Tomb of Patriarchs last week.
But the sweeping curfew, imposed on almost every Arab city, town and refugee camp in the two regions, failed to halt the unrest as youths attacked army patrols, blocked roads with burning tires and stoned cars.
Two men _ one 65 years old walking to a Hebron mosque to pray, the other a lawyer going to court in Nablus _ were killed as Israeli troops opened fire in clashes with demonstrators.
As the shock of the massacre began to subside, Israel and the PLO returned to workaday politics Monday, deliberating steps necessary to restart peace talks in the aftermath of Friday's bloodshed that left about 40 Muslim worshipers dead.
Gad Yaacobi, Israel's ambassador to the United Nations, told Israel radio that it was possible his government would allow unarmed international observers to be stationed in the occupied West Bank and Gaza Strip.
But that concession proved to be a major stumbling block later when the PLO rejected Israeli concessions aimed at coaxing them back to peace talks. The PLO said early today the concessions did not go far enough in protecting Palestinians.
"We still insist on military and armed peacekeeping forces to protect our people," PLO Executive Committee member Ali Ishak said after the committee rejected the offer. "What has been proposed is insufficient."
Israel also offered to disarm settlers in Gaza and the West Bank town of Jericho and expand the proposed Palestinian police force, according to PLO officials.
Palestinian leaders, playing on international outcry over the carnage, defined new conditions for returning to the talks. The PLO seeks to accelerate discussions about the future of the 144 Jewish settlements in the territories, which have been occupied by Israel since the 1967 Middle East war.
_ Information from Los Angeles Times, AP and Cox News Service was used in this report.