HIGHLIGHTS: Rice Rules out PA Role in Statehood||A Palestinian Shot Dead Near Nablus||Israelis Say Hamas is Planning to Use Chemical Weapons Against Them||Israel Officially Begins Building West Bank Fence|| STORY: Israeli Prime Minister Ariel Sharon told his cabinet on Sunday that now was not the time for talks on setting up any type of Palestinian state, an option being considered by President Bush.

Sharon held talks in Washington last week with Bush, who has vowed to lay out a vision that would lead to Israelis and Palestinians living side-by-side.

The White House has acknowledged that the setting up of an interim Palestinian state is a real option.

Sharon has said before that the creation of a Palestinian state would be acceptable only at the end of a long and incremental peace process after the complete cessation of Palestinian attacks on Israelis.

CONDOLEEZZA RICE RULES OUT PA ROLE IN STATEHOOD

The Mercury News daily of San Diego reported that the Bush Mideast policy, according to National Security Adviser Condoleezza Rice, would not be based on Yasser Arafat's Palestinian Authority.

``Frankly, the Palestinian Authority, which is corrupt and cavorts with terror . . . is not the basis for a Palestinian state moving forward,'' Rice told the Mercury News editorial board, in the report published Friday.

Rice's comments were the most detailed to date about the direction the White House is moving regarding the Middle East.

Rice visited the Bay Area of California to deliver the commencement address Sunday at Stanford University, where she is a political-science professor and served as provost for six years.

Bush and other top administration officials have not hid their disappointment with Arafat for failing to stop the terrorist acts that have escalated since the peace talks led by former President Clinton broke down at Camp David in October 2000.

A PALESTINIAN SHOT DEAD NEAR NABLUS

There was more violence on Sunday when a Palestinian was shot dead near the town of Nablus on the West Bank.

The Israeli army says it opened fire on the man when he refused to stop after being caught trying to cross a checkpoint without permission.

On Saturday, two Israeli soldiers were killed and four others injured in an attack near the Jewish settlement of Dugit in the northern Gaza Strip.


HAMAS THREATENS CHEMICAL WEAPONS AGAINST ISRAEL

Back in the territories, Hamas is threatening to use chemical weapons against Israel, according to a report this evening on Israel's Channel 2 TV.

The group has taken a strategic decision to incorporate chemical weaponry along with conventional bombs and other munitions, according to an Israeli journalist.

Reading out from a Hamas Communiqué, Israel analyst Ehud Ya'ari said: "When we reach that stage [of using chemical weapons], the gates will be opened to develop attacks against the enemies of Allah"

According to the report, Palestinians have dipped bomb ingredients in rat poison and cyanide in several previous suicide attacks, however the great portion of the material was incinerated in the explosion, security sources said.

ISRAEL OFFICIALLY MARKS ERECTION OF WEST BANK FENCE

Israel on Sunday formally marked the start of building a security fence along its porous West Bank frontier, which Palestinians said, effectively canceled out peace deals with the Jewish state.

Bulldozers have been at work for several days near the occupation army's Salem checkpoint in the northern West Bank, leveling the ground for the first section of the 70-mile fence aimed at stopping Palestinian bombers from reaching Israel.

Palestinian minister Saeb Erekat accused Israel of seeking to divide Palestinian areas into cantons and "start a new apartheid system worse than what happened in South Africa."

PHOTO CAPTION

Israeli Prime Minister Ariel Sharon (R) and Foreign Minister Shimon Peres attend the weekly cabinet meeting in Jerusalem June 16, 2002. Sharon told his cabinet that now was not the time for talks on setting up any type of Palestinian state, an option being considered by President George W. Bush. Photo by Pool/Reuters