Palestinian Killed in Bethlehem Church

A day after a fire raged briefly inside the historic Church of the Nativity in Bethlehem, a Palestinian gunman was killed by Israeli snipers posted around the besieged church, Palestinian officials said.

A second Palestinian was also critically wounded, according to Palestinian officials, but there was no independent confirmation of the report since the area around Bethlehem's Manger Square has been sealed off in recent days.

The Israeli military said it had reports of four wounded Palestinians, including two who refused to come out of the compound.

The incident followed a gunfight at the ancient site on Wednesday night and a fire that briefly blazed in three rooms of the Orthodox Christian and Franciscan section of the church, built over the site where tradition holds Jesus Christ was born.

The basilica, about 50 feet from the blaze, appeared to be undamaged.

Each side blamed the other for starting the gunfight and the blaze.

The standoff in Bethlehem began April 2, when more than 200 Palestinians, including gunmen, took refuge inside the fourth-century church as Israeli troops invaded the West Bank town.

Palestinian and Israeli negotiators have been holding talks in recent days and a Vatican envoy, Cardinal Roger Etchegaray, is in the region to try to bring an end to the confrontation at one of Christianity's holiest sites.

Etchegaray met with Israeli President Moshe Katsav in Jerusalem today, but refused to provide details of the meeting.

Arafat Furious Over Bethlehem Siege

In the last several days, about 30 people have been allowed to leave the church under agreements between Israeli and Palestinian negotiators.

But a deadlock remains over the fate of the gunmen inside. Israel insists they must either surrender or accept exile, while the Palestinians say they will go no further than the Gaza Strip.

In an interview with ABCNEWS' Ted Koppel on Wednesday, Palestinian leader Yasser Arafat said he was in constant contact with those inside the compound, and says they did not start the fire.

"I am very furious of what is happening in the Nativity Church," Arafat said. When told the Israelis were blaming the Palestinians for the fire, he grew enraged.

"Can you believe that?" he asked. "Big lies... Can you, are you believing these big lies?"

Read transcripts of Ted Koppel's interviews with Palestinian leader Yasser Arafat and Israeli Prime Minister Ariel Sharon.

Witnesses told The Associated Press three people were hurt putting out the blaze.

As Palestinian gunmen fired from their positions inside the church, Israeli soldiers fired flares and threw stun grenades and smoke bombs, the witnesses said.

It was unclear what sparked the gun battle. Israel officials told ABCNEWS they came under fire first, and returned the fire. But Palestinian Information Minister Saeb Erekat, speaking from the West Bank town of Jericho, told CNN there was an Israeli attempt to storm the church.

The siege at the Church of the Nativity is the last sticking point from Israel's large-scale incursion into the West Bank that began March 29 after a series of deadly Palestinian suicide bomb attacks.