HA’ARETZ 1. JERICHO, KALKILYA, RAMALLAH AND TUL KARM TO BE HANDED OVER TO PA RESPONSIBILITY WITHIN 10 DAYS. Transfer of Jericho and Kalkilya expected tomorrow or Tuesday. Dahlan promises to deal with Rafiah weapons-smuggling tunnels; will submit plan for supervising fugitives in cooperation with US. IDF leadership agrees to understandings: “Risk is minimal.” Several ministers – including from Likud – oppose. Israel allows Arafat to leave for mourners’ tent in Gaza.

2. NABIL SHAATH CAUSES STORM: REFUGEES HAVE RIGHT OF RETURN – TO HAIFA TOO. 3. FOR FIRST TIME IN THREE YEARS: IDF ESTABLISHING POSITIONS IN AREA A. 4. HIZBALLAH INITIATING IRANIAN-ASSISTED KIDNAPPING OF ISRAELI OR JEW FOR BARGAINING PURPOSES. 5. Economic situation. LOW CPI REFLECTS DEEPENING RECESSION. 6. Shas in opposition: WAITING FOR CANCELLATION OF PAYMENTS TO BRING BACK VOTERS. HATZOFEH 1. In contravention of ISA recommendation, PM Ariel Sharon and DM Shaul Mofaz announce: KALKILYA AND JERICHO TO BE HANDED OVER TO PALESTINIANS WITHIN DAYS. Within short time, Israel will also transfer to Palestinians security responsibility for Ramallah and Tulkarm. On Friday, Israel released 73 additional Palestinian prisoners and promised to take down roadblocks in Judea and Samaria. 2. JERUSALEM ASTOUNDED OVER NABIL SHAATH’S REMARKS ON “RIGHT OF RETURN” TO CITIES INSIDE ISRAEL AS WELL. Several ministers to demand halt of gestures to Palestinians at this morning’s Cabinet meeting. 3. Severe economic recession finds expression in CPI. JULY CPI DECLINES BY 0.7%. Lowest monthly CPI since 1967. 4. CHANNEL 1: AIR FORCE JETS BUZZED PRESIDENT ASSAD’S VACATION RESIDENCE IN SYRIA IN EFFORT TO GIVE HIM MESSAGE TO REIN IN HIZBALLAH. MA’ARIV 1. And now – child allowances. BLOW TO FAMILIES. As of this week, tens of thousands of families will be compelled to make do with cut worth hundreds of thousands of shekels per month. 2. “HAIFA IS LIKE NABLUS.” Outrage in Israel over remarks by Palestinian Foreign Minister Nabil Shaath. Mofaz and Dahlan agree on transfer of four cities to Palestinians. 3. WARNING OVER ASSAD’S HEAD. Flight of fear: In wake of terrorists’ fire. YEDIOT AHRONOT 1. “HUDNA WILL CONTINUE.” Mofaz and Dahlan formulate agreement to save hudna: Jericho to be transferred to Palestinians tomorrow. Next in line: Kalkilya, Tulkarm and Ramallah. Outrage over Nabil Shaath’s remarks: “Right of return to Haifa too.” 2. INFLATION IN ISRAEL: LOWEST IN WORLD. July CPI drops by 0.7%; annual inflation: –1.6%. Interest rates in Israel: Highest among all developed countries. 3. SUSPECT ARRESTED IN DISAPPEARANCE OF DANA BENNET. Dana Bennet, 18, disappeared over two weeks ago. 4. SHIMON PERES IS 80. ______________________________ SUMMARY OF EDITORIALS FROM THE HEBREW PRESS Yediot Ahronot comments that Israel has initiated a number of meetings and gestures to save the hudna. The editors note that transferring control of Ramallah to the Palestinian Authority will effectively release Yasser Arafat – and the fugitives taking refuge in the Mukata – from the 1.5-year-long siege. The paper asserts that, “The Israeli initiative…presents Arafat with a challenge that he has failed in, in the past,” and believes that the coming weeks will be crucial in finding out whether Arafat will continue with terror or not. Yediot Ahronot, in its second editorial, condemns the government economic plan, which will result in 40% of Israeli children living under the poverty line. Hatzofeh says that although the power cut in the US and Canada over the weekend was not the result of a terror attack, the world should be prepared for the possibility that terrorist organizations will attempt to perpetrate such an attack in the future. Yediot Ahronot, in its third editorial, reflects that the tragedy in which a grandfather killed his autistic granddaughter and then took his own life should raise questions of how Israeli society relates to people with physical or mental disabilities. bpi.