Palestinian gunmen battled forces loyal to Yasser Arafat's new security chief in southern Gaza yesterday in a fresh spate of internal violence that signalled a growing breakdown of law and order.

Hundreds of gunmen, many of them masked, exchanged heavy fire with forces loyal to Mr Arafat's cousin Moussa Arafat, whom he appointed as Gaza's new security chief following a series of high-profile abductions in the strip over the weekend.

The stand-off stepped up pressure on Mr Arafat to wipe out alleged widespread corruption that sparked the crisis which was deepened by the resignation of his prime minister Ahmed Qurie.

Mr Arafat has not seen such turmoil since his Palestinian Authority took control over most of the Gaza Strip in 1994 under interim peace accords with Israel.

"Where are the reforms you promised, Mr Arafat," shouted gunmen in the nearby town of Khan Younis. They later set fire to a car belonging to a security officer loyal to Mr Arafat.

In a show of force, thousands of gunmen marched across the Gaza Strip last night demanding that Mr Arafat fire Moussa Arafat, a member of an old guard widely viewed as corrupt.

"This corruption is like a cancer," gunmen shouted in a rally at the Nusseirat refugee camp in central Gaza. "We are against corruption, against corrupt government and for reform".

At a meeting yesterday of the Palestinian National Security Council, Mr Arafat told Mr Qurie he "strongly rejects" his decision to quit, cabinet minister Saeb Erekat said.

Calls for reform have multiplied amid a brewing factional power struggle in the Gaza Strip in anticipation of Israeli Prime Minister Ariel Sharon's planned withdrawal of troops and settlers from the occupied territory by the end of 2005.

Mr Sharon said Palestinian in-fighting showed he was right to take unilateral action rather than negotiate with Mr Arafat.

"What is happening in the Palestinian Authority proves that all the contrived efforts to show that there is someone to talk to on the Palestinian side are motivated by personal interests and are unrealistic," Mr Sharon was quoted as telling his cabinet.

Earlier in the nearby town of Khan Younis in the Gaza Strip, gunmen attacked and burned down a post manned by members of a security service already controlled by Moussa Arafat, sending officers fleeing into the night.

Al-Aqsa Martyrs Brigades, a militant group within Arafat's Fatah faction, said it destroyed the facility to protest Moussa Arafat's appointment. At a news conference after the attack, Moussa Arafat said he had no intention of stepping down.

In a new blow to the Palestinian president's prestige, the commander of the Palestinian coast guard, Juma Ghali, tendered his resignation. Security sources said Ghali was protesting against Moussa Arafat's appointment and instability in Gaza.

Submitting his resignation, Mr Qurie complained about "unprecedented chaos" in Gaza triggered by the brief abduction on Friday of four French aid workers, the police chief and another official by gunmen demanding reforms.

"Things have changed in the last two days. There are no more sacred cows. People are simply fed up," Sufian Abu Zaideh, a Palestinian deputy minister, told Israeli Army Radio.

Mr Arafat ordered a security shake-up in Gaza, merging 12 competing armed forces into three. After Mr Arafat rejected his resignation, Mr Qurie suggested his decision was on hold at least until a Palestinian Authority cabinet meeting today.

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