Israeli Prime Minister Ariel Sharon says the country's massive military operation in the West Bank will continue despite demands from the United States for an immediate withdrawal from Palestinian-ruled territory.

Mr. Sharon told members of parliament the Jewish state is trying to accelerate its military operation, but will continue until Palestinian militias responsible for terrorist activity are crushed.

Mr. Sharon says the military would eventually return to buffer zones between the West Bank and Israel when the mission, now in its 11 day, is completed.

During his speech, the Israeli prime minister said he is willing to meet with Arab leaders without preconditions to discuss efforts to end the conflict with the Palestinians.

The prime minister welcomed a recent peace initiative by Saudi Arabia, saying the proposal has positive elements.

Mr. Sharon says he will discuss the initiative with Secretary of State Colin Powell, who is expected to arrive in Israel late this week.

The United States, European Union officials, and the U.N. Security Council have urged Israel to withdraw from Palestinian-ruled territories without delay.

Before Mr. Sharon's remarks, Israeli troops traded fire with Palestinian militants around the Church of the Nativity in Bethlehem, the site where tradition says Jesus was born. Witnesses say a Palestinian policeman was killed in the fighting.

The Israeli army says Palestinians fired guns and threw grenades at Israeli positions near Manger Square, outside the church.

About 200 Palestinians, many with guns, have been hiding inside the church since last week.

Israeli soldiers have been using loudspeakers to demand that the gunmen surrender, but they have refused to come out.

The army says soldiers will not storm the holy site, but Prime Minister Sharon says the militants inside will not be allowed to escape.

Also in the West Bank, Israeli combat helicopters fired nearly 20 missiles into the Jenin refugee camp. Jenin has been the scene of intense fighting since Israel launched its massive military invasion late last month in response to Palestinian suicide attacks.

Israeli troops and tanks continue to surround Palestinian Chairman Yasser Arafat's headquarters in Ramallah.

The Israeli military says about 200 Palestinians and 14 soldiers have been killed in the recent fighting, and nearly 1,500 Palestinians have been arrested.