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Senior Palestinian Authority sources say Chairman Yasser Arafat has lost some of his mental capacities and cannot function. Some doubt that he will be capable of resuming his position as PA leader, even if his health recovers to some extent.

In Paris, where Arafat is hospitalized, Palestinian sources said initial tests on the 75 year old leader ruled out leukemia, but his condition remains serious. The Palestinian envoy to Paris, Leila Shahid, said specialists were still looking for the cause of the dramatic collapse of the Palestinian leader's health.

The reports that Arafat's mental state may have deteriorated are worrying Palestinian leaders at home far more than his physical health. Reports say that after his collapse last Wednesday, Arafat lost his mental functioning. In some cases he did not recognize people who came to visit him.

Diplomatic sources said last week he even had trouble recognizing Abu Mazen and Abu Ala who and in some cases his speech was incoherent and confused, but there is no clear opinion on whether such lapses might be permanent or temporary. However, there are grave doubts as to whether, even after a relative recovery, he will be able to make decisions or give orders or even to understand what is happening around him, sources said.

"Arafat spent a very good night and woke in very good humor, rested. The doctors rule out for now any possibility of leukemia," Shahid told reporters outside the Percy military hospital in Paris.

However, a Palestinian official who spoke on condition of anonymity earlier said there remained a strong likelihood that Arafat was suffering from leukemia and a team of French specialists was examining him again yesterday.

It was not clear whether the contradictory reports on his condition were a deliberate attempt by his confidants to obfuscate the situation, or simply due to a lack of definitive test results at this stage.

In Arabic, Shahid said other tests also had not shown "any sign of other dangerous diseases." She added in English, "there are other possibilities they are still exploring."

The Israel Defenses Forces is expected to limit its operations in the territories, given the uncertainties on the Palestinian side because of Arafat illness and his departure to Paris.

Meanwhile, former Palestinian prime minister and head of the PLO's Executive Committee, Mahmoud Abbas (Abu Mazen) conducted the committee meeting in the Muqata compound in Ramallah yesterday. The chairman's seat was left empty as a mark of respect and solidarity with Arafat.

At the end of the meeting Abu Mazen stated that the executive committee, the PLO's most senior body, agreed to continue the activity of the PLO, the Fatah and the PA "to ensure continuity as Arafat wishes." He called on the various Palestinian sects, including the Hamas and Islamic Jihad, to cooperate with him "to protect the Palestinians' destiny."

Abu Mazan and Palestinian Prime Minister Ahmed Qureia agreed on a division of labor between them. Abu Mazen will take Arafat's place in the executive committee debates and other PLO and Fatah bodies, while Qureia will oversee the everyday functioning of the PA, including the cabinet, parliament and security organizations.

In the past all these authorities were concentrated in Arafat's hands. The division the two made, at least temporarily, until Arafat's situation clears up, is a signal that they intend to separate between the PLO and the PA. This is one of the main structural reforms that the international community had demanded of the PA in the recent years, but Arafat had postponed.

Abu Mazen announced that the Palestinian leadership in the territories continues to maintain contact with Arafat in Paris and consult with him, but the only connection of the Palestinian officials in Ramallah with Paris appears to be with members of Arafat's entourage and not directly with him.

Despite Abu Mazen's announcements, he and Abu Ala have refrained so far from making any new decisions regarding PA management. A senior Palestinian source yesterday said that until Arafat's situation is clear, the two have no intention of making any significant decisions on any appointments.

The former minister in charge of security, Mohammed Dahlan, yesterday said: "There is no conflict in the PA due to Arafat's situation," Speaking on the telephone to the satellite television station Al Arabiya, Dahlan said political power struggles over Arafat's inheritance "so far exist only in the media and we only hope to return with the rais (president) to the territories when he is in better health."

Dahlan said the present situation did not mean the PA was in paralysis. "We are committed to unity and I don't think there is an argument or a conflict. His situation does not mean there is an alternative leadership. This is not on the table."

He added: "It is important for the Palestinian street not to feel that there is a struggle because such an argument serves the purposes of Israel."

So far the feeling of crisis is reflected mainly in private or closed meetings among senior PA officials and in consultations about developments in the immediate future. The Palestinian Legislative Council will convene in Ramallah today to discuss Arafat's condition and steps that must be taken in the near future.

Sources said the council will debate proposals to change the Palestinian basic law, to enable transferring full authorities to Abu Mazen and Abu Ala. However, these proposals are expected to raise strong objections from others in the Palestinian leadership, as well as from the opposition, mainly by the Hamas and Islamic Jihad.

Ismail Haniya, a senior Hamas official from Gaza, issued a statement calling for "a collective national leadership as the supreme political authority, with all the groups, so that the Palestinian people can rally round it until general elections are held. The Hamas has always supported the possibility to put political differences aside to face the enemy together."

A Hamas spokesman in Gaza, Mushir Almasri, issued a statement accusing Israel of responsibility for the deterioration in Arafat's health. The defense establishment decided that Israel must refrain from interfering in any succession struggles of the Palestinian Authority and try to calm things down, to avoid accusations that it is involved in any way.

One of the first issues on the agenda, with Arafat's leaving, is the situation in the Muqata in Ramallah. Israel has refrained from acting in the compound for the past two years, since it lifted the tight siege on it in October 2002, on an American request. Throughout this period more than 20 wanted men, mostly Fatah members, some of whom are suspected of murdering Israelis, found shelter in the Muqata.

Apparently, with Arafat's departure, the "immunity" of the wanted men expired and the IDF can enter the compound to detain them. However, this would most likely be interpreted as a deliberate attack on the stability of the Palestinian regime and a challenge to Arafat's successors.

Meanwhile the IDF's operation in Jenin is continuing. In Gaza the IDF may limit its operations as long as Sderot and the Katif settlements are not attacked by rockets and mortar shells.