Defence Minister Shaul Mofaz charged that the Palestinians are not fulfilling their commitment to collect weapons from fighters in the two towns Israel transferred under terms of a 8 Febuary ceasefire.
He was speaking at a meeting of Israel's security cabinet on Wednesday.
After nightfall, Israeli soldiers shot and killed two Palestinian youths in a West Bank village near the city of Ramallah, Palestinian security and hospital officials said.
The security officials said the youths were throwing rocks at troops guarding the separation barrier Israel is building near the village of Beit Lakia when the soldiers opened fire. The Israeli military had no immediate comment.
No formal vote
Israeli Interior Minister Ophir Pines-Paz, who took part in the security cabinet meeting, said the body agreed with Mofaz's decision, but the Prime Minister's Office said there was no formal vote.
In the weeks after the truce was declared, Israel turned over control of Jericho and Tulkarem to Palestinian security, but held up the other three, claiming Palestinian violations.
Senior Palestinian negotiator Saeb Erekat said the Palestinian Authority was never formally notified of the Israeli freeze. "It's a very unfortunate approach and decision," he said.
"It's a very unfortunate approach and decision"
Palestinian Negotiations Minister Saeb Erekat
In Gaza, meanwhile, the newly appointed Palestinian security chief in charge of reining in fighters said on Wednesday he has no plans to disarm them, but asked the armed groups not to flaunt their weapons.
Brigidier-General Rashid Abu Shbak also said a long-promised crackdown on crime would only begin after local elections are held this week, to avoid allegations that the security services are trying to intimidate candidates or influence the voting.
Israel and the US have repeatedly demanded that the PA dismantle the armed groups.
Palestinian leader Mahmoud Abbas has avoided large-scale confrontation, opting instead for persuasion and compromise.
However, he has used tougher language in recent days, saying he would use an "iron fist" against those violating a February cease-fire with Israel.
Abu Shbak appeared to be trying to reassure the fighters on Wednesday.
"The Palestinian factions know that we have no plan to disarm the resistance and to take their weapons," Abu Shbak said.
The groups shouldn't misinterpret this as licence to flaunt their weapons or use them for criminal purposes, he said.
"We have to work step by step to end all the lawlessness in our society, but at same time, resistance weapons should not be in the streets for no reason."
With the truce growing shakier by the day, Abbas has come under increasing pressure to confront fighters.
In Gaza on Tuesday, his police freed a Hamas fighter who was seized with weapons and a rocket launcher in his car just minutes after fighters fired rockets from Gaza at Israel in violation of the 8 Febuary truce.
Fighters have been told by the
PA not to flaunt weapons
Palestinian officials said the suspect was released under pressure from Hamas and Egypt, which helped mediate the truce.
Israel and the US, critical of the suspect's release, urged the PA once again on Tuesday to dismantle the groups. Abu Shbak was unmoved.
"We are not going to have any confrontation with anyone," he said. "We will not reach this point, and we will not allow anyone to bring us to this point."
Fear of bloodshed
Abu Shbak urged the Palestinian groups to act responsibly, cautioning that they could bring bloodshed upon the Palestinian people should they not.
Fear of bloodshed was also on Abbas' mind Tuesday when he attacked Israel for pressuring him to confront armed factions.
"Israelis want Palestinian blood to be spilled, and we don't accept that," the Palestinian government news agency, WAFA, quoted Abbas as saying.
Still, he said, "the Palestinian Authority is acting to prevent chaos and a proliferation of guns on the streets and in public places."
Speaking before a group of business people, academics and public officials in the West Bank city of Ramallah on Tuesday, Abbas also promised a referendum on any final peace deal, and said Palestinians "would not accept anything less" than Israel's return to the borders it held before the 1967 Mideast war.
Israeli Prime Minister Ariel Sharon has said Israel intends to hold on to major West Bank settlement blocs, and over the past year, has received backing on this from the US.
In an April 2004 letter to Sharon, President George Bush said that, given demographic changes on the ground, it would be "unrealistic" to expect any final peace deal to include a "full and compete return" of the West Bank.
With peacemaking at an impasse, Sharon has planned a unilateral evacuation of Israeli settlers and military from the Gaza Strip and four small northern West Bank settlements this summer.
"Israelis want Palestinian blood to be spilled, and we don't accept that"
PA President Mahmoud Abbas
Although this plan has been in the works for more than a year, the 9,000 settlers there are only now taking tentative steps to seek other places to live.
One proposal on the table is a government proposal to move hundreds of families to an environmentally sensitive area in southern Israel, Nitzanim.
The government has asked settlers to collect signatures by Tuesday from settlers interested in moving to Nitzanim, Justice Ministry spokesman Jacob Galanti said.
The government would interpret signatures as a sign of the settlers' willingness to move peacefully, and without a
significant number of signatures, the plan would be "in jeopardy," Galanti said.
The Yediot Ahronoth newspaper reported that anyone who would break the law or resist violently during the evacuation would be barred from the Nitzanim project.