In Israel, the formation of a new national unity government to carry out the planned withdrawal from Gaza next year appeared likely to be delayed when a small religious party set out tough conditions for its participation in the coalition.

"We will remain faithful to your (Arafat's) legacy until freedom," Abbas told a 20,000-strong crowd that had gathered in Gaza City's Unknown Soldier Square.

Abbas, who is the Fatah official candidate and great favorite to win the January 9 presidential polls, went on to light a torch to launch festivities marking the 40th anniversary of the political movement created by Arafat.

Fatah dates its official birth to the first attack it staged against Israel on January 1, 1965, although the group was actually founded five years earlier in Kuwait.

Abbas also reiterated his support to the Palestinian "national imperatives" that were defined by Arafat, citing "the creation of an independent Palestinian state with Jerusalem as its capital, the end of the occupation and of the apartheid wall (Israel's West Bank barrier) and the right of return for the Palestinian refugees."

His insistence at carrying on with Arafat's heritage has angered the Israeli government, which viewed the late leader as a "terrorist" and squarely rejects the return of millions of Palestinian refugees that were either expelled or fled their home after the creation of the Jewish state in 1948.

Abbas is due to stay in the Gaza Strip until Monday afternoon.

The impoverished territory is the stronghold of the radical Islamist Hamas and Islamic Jihad groups, which have said they would boycott the elections.

Both groups did however field candidates to the municipal elections last week in the West Bank where they came second after Fatah. They have also announced plans to run for the legislative polls next year.

They are forecast to win many village and town councils during a second tranche of municipal polls next month in Gaza.

Earlier Friday, two fighters of Hamas' military wing were killed in an Israeli air strike at the Khan Yunis refugee camp in the southern Gaza Strip.

The army said the men were planting explosives on a path used by its troops.

Their deaths brought the toll of Israel's operation in the area, which the army says aims to thwart Palestinian rocket and mortar firing at Gaza's settlements, to 11 killed since Wednesday. At least nine were armed militants.

Two Palestinian teenagers were also shot dead by Israeli troops in Rafah on the border with Egypt.

And Friday night, Israel said its troops had fired on and apparently hit three "suspect sillhouettes" approaching an off-limits area near Rafah.

The latest confirmed deaths bring the overall toll since the September 2000 start of the Palestinian uprising to 4,660, including 3,615 Palestinians and 970 Israelis.

Under Israeli Prime Minister Ariel Sharon's disengagement plan, soldiers and settlers are due to be withdrawn from all 21 Gaza settlements and another four in the northern West Bank.

The imminent formation of a national unity government in Israel, putting Israeli prime minister Ariel Sharon's right-wing Likud party in a coalition with the center-left Labor party, should facilitate the controversial pullout.

Sharon's office said Thursday a deal had been clinched with 81-year-old Labor chairman Shimon Peres who will become his most senior deputy.

But the future government's formation was likely to be delayed after a small ultra-Orthodox party, which many in Likud want as a partner, upped its conditions for participation Friday.

"We are still asking that our educational system be independent and for substantial improvements in the state's religious services which have deteriorated," United Torah Judaism (UTJ) spokesman Moshe Shifman told AFP.

"These issues could be quickly solved if Likud were to grant its agreement, but it has failed to do so until now," he added.

The pullout is opposed by settlers, ultra-nationalist and religious parties and even by a quarter of Sharon's Likud MPs.

The army's chief rabbi Yisrael Weiss caused uproar Friday after he offered to resign in protest at the planned evacuation only to say later that he had made "a slip of the tongue."

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