Israel and the Palestinians are observing a tentative ceasefire, raising hopes for renewed talks after nearly one year of bloodshed.

Several shooting incidents broke out in the West Bank and Gaza Strip, but no serious clashes were reported after Israeli and Palestinian leaders took measures to reduce the violence.

Calm in the region is seen as crucial to Washington's efforts to bring Arab and Muslim nations into an international anti-terror coalition after last week's attacks on the United States.

A potential threat to the ceasefire came from two Palestinian militant groups, Hamas and Islamic Jihad. Both are vowing to continue their fight against Israeli occupation of land seized in the 1967 Middle East war.

Palestinian leader Yasser Arafat has called on his forces to stop firing, and to show restraint even if they are under attack. Israel responded by withdrawing tanks and troops from Palestinian-controlled territory in the West Bank and promising to halt military strikes.

Israeli Foreign Minister Shimon Peres says the latest developments could mark a "turning point" in the conflict. The foreign minister says if the truce holds, he expects to begin talks with Mr. Arafat soon.

Mr. Peres has been trying to arrange such a meeting for weeks, but has been blocked by Israeli Prime Minister Ariel Sharon who says there must be two-days of complete calm before truce talks can take place.

Israeli government spokesman Avi Pazner says the 48-hour period has not yet begun, although he admitted there has been a "significant decrease" in the number of Palestinian attacks since Mr. Arafat called for the ceasefire.

Palestinian negotiator Saeb Erekat is urging the United States to dispatch an envoy to the region to help broker the talks. He says the confidence level between Israel and the Palestinians is currently "below zero."

The United States and many other nations have called on both sides to end the violence and begin implementing recommendations of an international commission led by former U.S. Senator George Mitchell. The Mitchell plan proposes a cooling off period, followed by confidence-building measures and a return to peace talks.

Previous ceasefire declarations have failed to halt the violence that erupted nearly one year ago. More than 800 people, mostly Palestinians, have died in the conflict.