Jerusalem ? Despite President Bush’s demand for new leadership, Yasser Arafat will run for re-election in January, a senior aide said Wednesday, hours after the Palestinians announced sweeping reforms for their financial, judicial and security systems.

The Palestinian Authority, under fire as corrupt and linked to terrorism, insisted its plans came in response to concerns of its own people, not Bush’s calls Monday for reforms and a new Palestinian leadership “not compromised by terror.”

An Israeli soldier is posted outside the Palestinian government building, background, in the West Bank town of Hebron as troops continue to surround the building. For the second straight day Wednesday, heavy machine-gun fire pounded the government compound, from which Palestinian police and gunmen wanted by Israel returned fire.

Senior Palestinian official Saeb Erekat, who announced presidential and legislative elections would be held sometime between Jan. 10 and 20, indicated Israel’s military presence in the West Bank could create problems in holding the vote. “Elections cannot be carried out with tanks on every corner,” he said, but refused to elaborate on whether Israeli military action could delay the elections.

Israeli forces controlled most West Bank cities and towns, confining at least 700,000 Palestinians to their homes while carrying out arrests and searches. Israeli officials have said the operation, which began last week when back-to-back suicide bombings killed 26 Israelis, would be prolonged.

In the town of Jenin, Israeli forces shot and killed an 8-year-old boy, Palestinian doctors said. The Israeli military said it used non-lethal means to disperse a crowd of Palestinians violating a curfew and was investigating the incident.

For the second straight day Wednesday, heavy machine-gun fire pounded the fortress-like Palestinian government compound in the West Bank town of Hebron, and a bulldozer began knocking down walls. Israeli military officials said 150 Palestinians inside had surrendered since the army surrounded the fortress early Tuesday. Of the 40 to surrender Wednesday, 20 were top fugitives, they said, without indicating how many more might be inside.

“We’re here. They’re there. We have the time,” Hebron battalion commander Lt. Col. David Blumenfield told Israel Radio. “Slowly, slowly, people are coming out.”

Candidacy confusion

Arafat has been widely expected to seek re-election, but neither he nor his aides had explicitly said he would until Palestinian Planning Minister Nabil Shaath said Arafat had told him he would run. Other senior Palestinian officials, Information Minister Yasser Abed Rabbo and Arafat aide Nabil Abu Rdeneh, said such talk was premature.

Asked whether Arafat would run again, Shaath told The Associated Press: “Yes, absolutely.”

But Abed Rabbo angrily disputed Shaath’s remarks, saying: “This is absurd, absurd talking about swimming before you have a pool or water. … I never heard this from the president.”

Arafat already has one announced challenger in the presidential race political scientist Abdel Sattar Qassem, 53. He told The Associated Press he rejects Bush’s call for replacing Arafat, but that he expects to defeat the Palestinian leader.

“I’ll focus on the internal issues, the corruption and mismanagement and looting public money, cronyism,” said Qassem, who is known in the West Bank but isn’t currently seen as a serious contender. Qassem does not recognize Israel and backs bombing and shooting attacks against Israeli civilians.

Shortcomings acknowledged

Corruption allegations have plagued the Palestinian Authority since its inception in 1994, and the reforms attempt to tighten management and improve auditing of public funds. After 21 months of violence, the Palestinian economy is in shambles and the Arafat government has largely ceased to function following repeated Israeli strikes in response to terror attacks.

Wednesday’s announcement was the first detailed acknowledgment by the Palestinian leadership of shortcomings long pointed out by others. It noted, for example, the need for “competent” judges and to “renounce fanaticism” in the education system.

Palestinians said they intended to restructure the Interior Ministry, bringing the police and civil defense under its control and making it more active in enforcing court rulings.

“Many of you may think, ‘Are we submitting this or saying this in response to President Bush’s speech?’ We are saying this in response to Palestinian needs. …We have been working on this reform for months,” Erekat said.