JERUSALEM (AP) A Palestinian gunman fired on Israelis waiting at a Jerusalem bus stop yesterday, fatally wounding two people and injuring 14 others. Israeli commandos hours earlier stormed an explosives lab and killed four Islamic militants in the West Bank.

The violence provoked outrage and warnings of retaliation on both sides.

Mideast tensions are again surging after several weeks of relative calm, with the Israelis effectively keeping Palestinian leader Yasser Arafat under house arrest at his West Bank government compound, and militant Palestinians abandoning an informal truce.

The Israelis said they launched yesterday”s commando raid in the West Bank city of Nablus and other pre-emptive operations because Arafat repeatedly refused to act against militants. They also held Arafat responsible for the shooting attack on one of west Jerusalem”s busiest streets.

“You can certainly expect an Israeli reaction,” said Israeli government spokesman Avi Pazner. “Israel has done very little until now. Apparently this was not strong enough medicine and maybe a strong reaction is needed.”

But Ahmed Abdel Rahman, the Palestinian Cabinet secretary, said Israeli Prime Minister Ariel Sharon “has to blame himself for pushing the Palestinians to react against this continuous aggression.”

In the Jerusalem shooting, a Palestinian gunman opened fire with an assault rifle on Israelis waiting in the rain for a bus and walking along one of the city”s main arteries, Jaffa Street.

Witness Akiva Harari said the attacker, wearing a heavy coat, emerged from a parking lot. “I saw him shoot two women and they fell,” he said. Police then chased the gunman back into the parking lot, followed by several minutes of sporadic gunfire,” Harari said.

“The terrorist tried to run away, but after a short chase, police succeeded in hitting him and killed him,” said Jerusalem police chief Mickey Levy.

Sixteen people were shot. Two women later died of their wounds, while four others remained in serious condition. In addition, more than 20 people were treated for shock, police and rescue workers said.

The gunman, Saeed Ramadan, was a member of the Al Aqsa Brigades, which is linked to Arafat”s Fatah movement, said the man”s uncle, Adnan Ramadan. The shooting was retaliation for last week”s killing of an Al Aqsa Brigades” leader, sources in the group said.

“We are at war,” Jerusalem Mayor Ehud Olmert told Israel television after viewing the carnage. “This war is not taking place in some far-off battleground, but is happening here, at home, in shops, restaurants.”

Marwan Kanafani, a spokesman for Arafat, said yesterday on MSNBC that cycle of violence resulted from the “wicked policy of Sharon” and that the only way to stop the retaliatory attacks was for Sharon to talk to Arafat.

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