The killings occurred when Darwish Abu Khatla, a 25-year-old former leader in Gaza of the Fatah Hawks - Palestinian militants loyal to Mr Arafat during the intifada - tried to cross the border at Rafah. He and two other men cut their way through the wire on the Egyptian side of the border, crossed a neutral zone and begun cutting the Israeli wire which seals off Gaza from direct contact with Egypt.
Israeli radio says they were spotted by a squad from the Sampson undercover force drawn from the Border Police. Palestinian sources say the Israelis, who have control of the Gaza-Egypt border under the 1993 Oslo agreement, were alerted by Egyptian soldiers.Abu Khatla, wanted by the Israelis since he left Gaza for Libya in 1990, was then shot dead and his two companions fled back into Egypt, where they were arrested.
Israel says one of two men in police uniform on the Gaza side of the border who were waiting for Abu Khatla opened fire and both were then killed by a second undercover team. Palestinian sources said the two - Abdel Nasser Salah and Hassan Abu Thuraya - belonged to Mr Arafat's guard unit, Force 17, but denied they were in his immediate entourage.
Mr Arafat has always been close to his guards and the low- key response is a sign that he does not want anything to divert attention from 1 July as the target date for reaching agreement on an Israeli redeployment from the main West Bank towns. His spokesman, Nabil Abu Rdainiah, merely said: "This is an irresponsible act and the Palestinian Authority is not linked in any way to the incident in Rafah." There is no evidence that the Force 17 members were acting under orders, but this would not be the first time Mr Arafat would have tried to smuggle wanted men into Gaza. Last July, four military members of Fatah entered Gaza in an Arafat homecoming diplomatic convoy. When the Israelis realised this, they closed the entry points to Gaza. Mr Arafat had to return the men to Egypt.
In Jerusalem, meanwhile, five Israeli youths were arrested yesterday in connection with a shooting outside the house of Faisal Husseini, the city's top PLO official. Earlier, two cars pulled up at Mr Husseini's house in east Jerusalem and the Israeli passengers started photographing the residence. A scuffle broke out when neighbours tried to stop them, and a passenger in one of the cars fired several shots in the air.