"The meeting has been put off in protest at Israel's killing of Palestinians in Rafah," a senior Palestinian source said, referring to southern Gaza camp stormed by the army on Tuesday in what it called a swoop on gunrunner tunnels.
The raids have also left 42 people injured, including nine children.
Top aides to Palestinian Prime Minister Ahmad Quraya and Israeli Prime Minister Ariel Sharon had been expected to meet in Jerusalem in ongoing efforts to arrange a summit and revive a US-led peace "road map" battered by renewed violence.
Israeli forces also carried out a raid in Jaba town near Jenin, killing a Palestinian. The troops claimed they were looking for wanted activists. The man was identified as Mamun, a father of four. He was shot in the head when the Israeli troops opened fire.
Elsewhere, about 15 Israeli military vehicles sealed off Qabatya town near Jenin at 0200 GMT and opened heavy fire, our correspondent reported.
The troops surrounded the houses of Yasir Nazzal and his
brothers, claiming that he was a top leader of al-Aqsa Martyrs Brigades. The inmates of the houses were forced out and made to wait in the biting cold for several hours, while the soldiers carried out a search. However, the troops failed to nab Nazzal.
Meanwhile, an Israeli soldier was injured on Wednesday in clashes with Palestinian resistance fighters in the Tulkarem refugee camp. About 30 military jeeps had moved into the camp, but pulled out later in the day after facing Palestinian resistance.
Rocket hits Israeli town
An al-Qassam rocket hit the southern Israeli town of Sederot near the Gaza Strip early on Wednesday, but there were no casualties, a military source said.
The home-made rocket, fired from the north of the Gaza Strip, damaged a parked truck, the source said.
Two Israeli settlers were injured late on Tuesday when a similar rocket was fired on the Nisanit settlement in the Gaza Strip. One of the wounded was said to be in a serious condition.
The Islamic Jihad has vowed to retaliate for the Israeli raid on the Rafah refugee camp.