Secretary of State Colin Powell says the Bush administration is reviewing its policy toward Yasser Arafat and his Palestinian Authority in light of what U.S. officials see as his inadequate response to anti-Israeli terror attacks and a Palestinian arms smuggling operation uncovered earlier this month.

Mr. Powell spoke to reporters in Washington Friday after taking part in a White House meeting at which officials say President Bush and his national security team discussed a possible down-grade of relations with Mr. Arafat unless he cracks down on extremists in areas under his control.

The secretary of state said he made clear in a phone conversation with the Palestinian leader Wednesday what he needs to do to prevent punitive steps by Washington. "I had a very long talk with Chairman Arafat the day before yesterday and once again pointed out to him the necessity for him talking strong, resolute, irreversible action to get terror under control, to give answers to the international community about the ship that was carrying all of those arms the Karine A to bring under control those organizations under his authority that are conducting terrorist acts," Mr. Powell said.

U.S. relations with Mr. Arafat deteriorated sharply this month following the interception by Israel of a boatload of Iranian weapons apparently bound for the Palestinian Authority, and attacks against Israeli civilians by groups associated with Mr. Arafat's Fatah political movement.

Administration officials say their own information links senior Arafat advisers with the smuggling attempt and say the Palestinian leader has yet to offer a satisfactory explanation. President Bush told reporters Friday he was "very disappointed" with Mr. Arafat over the smuggling affair and that ordering up such weapons enhances, rather than fights, terrorism.

U.S. options reportedly under consideration include shutting down Palestinian Authority offices in Washington, suspending peacemaking efforts by U.S. envoy Anthony Zinni, and placing Mr. Arafat's own security force on the State Department's list of terrorist organizations a move that could subject the Palestinian Authority to wide-ranging penalties.

No decisions are understood to have been taken at Friday's White House meeting and Mr. Powell said he would talk to Mr. Arafat again soon to "see what he is able to do, and what progress we can make."