Blair in rift with Bush over Israel

George Bush was facing his first serious rift with Tony Blair last night after Britain joined the European Union and the United Nations in rejecting American calls for Yasser Arafat to be ousted as leader of the Palestinian authority. In a sharp rebuff to President Bush, Downing Street and Jack Straw, the Foreign Secretary, said it was up to the Palestinian people to decide their leader.

President Bush's speech delighted the Israeli government, but was greeted with anger and despair in the Arab world, bringing protests that the US is trying to dictate to the Palestinians who should be their leader.

Buoyed by the presidential message, Israeli troops raided the Palestinian Authority's security headquarters in Hebron and killed four policemen, including a senior intelligence officer, in an exchange of gunfire.

Mr Bush's call for a new Palestinian leadership was rejected not only by the Palestinian Authority but by a wide range of world leaders. Kofi Annan, secretary general of the UN, warned last night that President Bush's call for the removal of Mr Arafat could backfire if a more hardline leader was elected. The former US senator George Mitchell, who tried last year to broker a Middle East peace deal, expressed similar worries that Islamic Jihad or Hamas could take over from the PLO leader.

The British Government's stance echoed that of the EU and foreshadowed similar conflict with the US over Third World debt and trade tariffs that could dominate the G8 summit that begins today in Canada. Mr Blair tried to play down differences with the Americans, welcoming the broad thrust of President Bush's strategy, setting out a timetable for Palestinian statehood within three years. But the refusal of both Downing Street and the Foreign Office to endorse the removal of Mr Arafat made it clear that this was the biggest foreign policy clash between America and Britain since 11 September. Mr Blair's official spokesman said that although the Prime Minister believed Mr Arafat should do much more to bear down on suicide bombers, Palestinians had the final say. "In terms of Chairman Arafat, we have always said that it is for the Palestinian people to choose their own leader," the spokesman said. "The British Government uses its words. The American administration uses its words," he added.

In the Commons, Mr Straw went further. "Our view has never been in doubt. We deal with the leaders who are elected as we find them. If President Arafat were re-elected by the Palestinian authority, we will deal with him." Mr Straw's aides pointed out that the Foreign Secretary made plain last month he was "relaxed about differences" between the UK and US on the Middle East, the Kyoto protocol on climate change and steel tariffs precisely because the two countries agreed on many other issues.

Mr Bush has always refused to meet the Palestinian leader but Mr Blair has received him in Downing Street as well as meeting him in Gaza. On the flight to Canada, Mr Blair tried to smooth over the differences, but he also acknowledged that the Palestinians would "elect who they want to elect", while emphasising the importance of finding a leadership "prepared to make a deal".