Fierce battles are continuing to rage between Palestinian gunmen and Israeli soldiers in the West Bank town of Beit Jala. The fighting began shortly after both sides announced an agreement for a cease-fire.

Gun battles continued into the night between Palestinians and Israeli troops in Beit Jala.

Palestinian gunmen fired at Israeli positions with automatic weapons and soldiers returned fire with heavy machine guns and an anti-tank missile.

Palestinians living in Beit Jala huddled in their homes as the clashes escalated.

An Israeli army spokeswoman said Palestinians also fired at the adjacent Jewish community of Gilo.

The fighting came after officials said Palestinian leader Yasser Arafat ordered gunmen in Beit Jala to stop firing on Gilo.

Both sides said Israeli forces could withdraw from Beit Jala soon if calm is restored and a cease-fire holds.

Israeli government spokesman Raanan Gissen said such an understanding has been reached, but declined to release any further details. "We have not started this round of shooting. We are the ones who are interested, I hope with the Palestinians too, to stop it and to bring about a cessation of shooting on Jerusalem from any direction," he said. "Therefore, we welcome this understanding. We hope it will hold. But I am saying the test will be on the ground."

Israel has been under strong pressure from the United States and other countries to withdraw from Beit Jala.

Israeli tanks and troops raided the town earlier this week after Palestinian gunmen fired on Gilo.

There was also heavy fighting in Beit Jala earlier Wednesday and in a nearby refugee camp.

Palestinian militants continued to fire mortar shells on Gilo although no injuries were reported.

Gilo, which is next to Jerusalem, was built on disputed land captured by Israel in the 1967 Middle East war.

Earlier, at least four Palestinians and one Israeli were killed in continuing clashes in the West Bank and Gaza Strip.