Israeli defence officials on Saturday blamed Syria and a Palestinian militant group based there for a suicide bombing that killed four Israelis outside a Tel Aviv nightclub threatening to shatter an informal truce with the Palestinians and Israel warned it may attack Syria in retaliation.

Syria denied the charges, saying the offices of Islamic Jihad, the militant group that claimed responsibility for the suicide strike, have been closed.

Israel has attacked Syrian targets in the past and will do so again if it deems necessary, a senior Israeli defence official said Sunday.

"There will be no progress politically, and I repeat no political progress, until the Palestinians carry out a determined campaign to destroy the terrorist groups and their infrastructure in the Palestinian territories," Sharon said before his weekly Cabinet meeting.

Israel has repeatedly demanded the Palestinians dismantle militant groups, but new Palestinian leader Mahmoud Abbas has opted instead to pursue a temporary truce agreement with the groups, saying a violent crackdown could lead to a civil war.

Abbas accused a "third party" of orchestrating Friday's attack to sabotage his and Sharon's new efforts at ending more than four years of violence between their peoples. Palestinian security officials blamed the Lebanese guerrilla group Hezbollah, which is backed by Syria and Iran.

The Palestinian militant group Islamic Jihad, which has members in Lebanon and Syria, claimed responsibility for the attack.

"The attack was carried out by the Islamic Jihad on the order from Islamic Jihad officials in Syria. We know this for certain," Sharon said.

"The immediate test of the Palestinian Authority will be in a determined operation against the Islamic Jihad," he added.

On Saturday, Palestinian police arrested two suspects with ties to Islamic Jihad. Israeli forces also arrested two of the bomber's brothers and four neighbors in his home village, including the local imam, or mosque preacher. The alleged driver who transported the bomber was also arrested.

Relations between Israel and the Palestinians have warmed considerably since Abbas was elected to replace the late Yasser Arafat last month.

Abbas has deployed Palestinian security forces throughout the Gaza Strip to prevent militants from firing rockets on Israel and brokered a temporary agreement with the militant groups to halt attacks. In response, Israel released 500 Palestinian prisoners, promised to release 400 more soon and agreed to hand over security control of five West Bank towns to the Palestinians.

After the attack, which killed four people and wounded dozens of others waiting outside a nightclub, Israel froze its plan to withdraw the troops.

Deputy Defence Minister Zeev Boim said an attack will "send a message to (Syrian President Bashar) Assad" that he must clamp down on Islamic groups based in Damascus, his capital city.

Israel's Defence Minister Shaul Mofaz blamed Syria for the suicide bombing Friday in a Tel Aviv nightclub. Four Israelis were killed and dozens of others were wounded in the bombing. But Mofaz stopped short of threatening to attack Syria.

Also, Vice Premier Shimon Peres said the United States is currently leading "an initiative" against Syria, and Israel has to allow it to do so.

Israel has attacked Syrian installations after accusing Damascus-based Islamic groups of masterminding, coordinating and overseeing attacks in Israel.

In 2003, Israeli warplanes bombed a Damascus-area Islamic Jihad base in retaliation for a suicide bombing that killed 19 people at a restaurant in Haifa. Last September, a leader of the militant Islamic Hamas group was assassinated in Damascus. Israeli officials tacitly acknowledged involvement in the killing.

In August 2003, Israel sent a clear warning to Assad when its warplanes flew low over Assad's summer palace in Latakia while he was vacationing there. The warplanes reportedly flew so low that windows in the palace shattered.

Along with sparking old tensions between Israel and Syria, the suicide bombing, which broke two weeks of relative calm, has threatened to derail an informal ceasefire declaration by Israeli Prime Minister Ariel Sharon and Palestinian leader Mahmoud Abbas.