Tel Aviv, Israel ? Israeli Prime Minister Ariel Sharon’s Likud party voted early today to reject the creation of a Palestinian state, a major defeat for Sharon that he feared would increase international pressure on Israel and tie his hands in potential negotiations.

On Sunday, some Israeli reservists pulled back from the Gaza Strip after the government said it had postponed an expected offensive in the Palestinian territory. In Bethlehem, nearly 1,000 people attended the first Sunday services in the Church of the Nativity since the end of a five-week standoff there.

Former Israeli Prime Minister Benjamin Netanyahu speaks during a Likud Party conference in Tel Aviv. The Likud Party voted to reject the creation of a Palestinian state, a decision seen as a major defeat for Prime Minister Ariel Sharon.

Sharon had strongly opposed the resolution on an eventual Palestinian state and had tried to prevent the vote, but his efforts were rejected and the Likud Central Committee overwhelmingly approved the proposal by a show of hands.

Though the party body does not have the power to remove Sharon from office, the vote showed his political weakness in his own camp, which could limit his effectiveness and provided an ominous sign for his future leadership of the party ahead of the next election, scheduled for November 2003.

Behind the confrontation with Sharon was ex-premier Benjamin Netanyahu, who has announced his plans to challenge Sharon for party leadership and eventually, prime minister.

Only a handful of delegates voted against the Netanyahu-backed resolution, which read, “No Palestinian state will be created west of the Jordan (River),” referring to the area including the West Bank, Israel and the Gaza Strip.

Opposition to a Palestinian state has been the traditional position of the Likud, but Sharon has said that under stringent conditions, he would agree to creation of such a state, at one point calling it “inevitable.”

Palestinian Cabinet minister Saeb Erekat said the vote “unmasked many things. This just shows that the war being waged by Israel against the Palestinians is not a war against what they call terror, it’s really their war to maintain the occupation of the West Bank and Gaza.” He told The Associated Press that the vote was “a real slap in the face” for President Bush, who has spoken in favor of setting up a Palestinian state.

In Washington, the Bush administration was studying the development and had no immediate, official response.

But a senior administration official, speaking on condition of anonymity, said that while the party’s vote was a setback for Sharon, it should not be seen as a broader setback for the peace process. The official noted that Israel is run by a coalition government, not Likud alone.

Instead of the measure opposing a Palestinian state, Sharon asked the convention to approve a resolution backing his government in its efforts for peace and security. In a secret ballot, delegates voted against Sharon’s proposal by a margin of 59 to 41 percent, a stinging defeat for Sharon.

Looking defiant but uncomfortable, Sharon took the podium and made a brief statement after losing the vote on his resolution. He said he would honor the decisions of his party’s central committee, but added, “I will continue to lead the state of Israel and the people of Israel according to the same ideas that led me always security for the state of Israel and its citizens and our desire for real peace.”

Netanyahu said the vote showed how the Likud party activists view peacemaking. “In the midst of a terror campaign run by (Palestinian leader Yasser) Arafat, they don’t want to envision a terrorist state which would threaten the destruction of Israel.”

Meanwhile, Arafat prepared to visit Jenin, Bethlehem and Nablus today his first trip outside of Ramallah since December, when Israel forbade his freedom of movement.

Israel said it had allowed Arafat to make the trip in a Jordanian helicopter.

All three cities were flashpoints of deadly violence between Israeli troops and Palestinians gunmen during the last weeks as Israel launched operation “Defensive Shield,” to root out suspected terrorists from the West Bank.

But as of Saturday, all Israeli troops were out of Palestinian-run areas and some reservists called up for a retaliatory strike against militants in Gaza, were sent home Sunday.

When asked about the postponement of the incursion into Gaza, Israeli Defense Minister Binyamin Ben-Eliezer said Israel was “willing to give a chance (to peace negotiations) and wait.” Israeli media said the assault was put off because of U.S. pressure.

In Bethlehem, worshippers returned to the Church of the Nativity for the first services since the end of a siege there. The smell of incense filled the air as different Christian denominations held Sunday prayer services.

“When I entered, I felt the joy in the eyes of the people praying again in the basilica,” said Alberta Katan, 65, as she lit candles near the grotto believed to mark the birthplace of Jesus.

At the Vatican, Pope John Paul II described his great relief over the end of the siege and the resumption of religious services and urged mutual trust between Israelis and Palestinians.

In Sharon’s speech to the Likud leadership before the vote, he said Israel could not negotiate with Palestinians before terror ends and their leadership undergoes massive reforms.

“Only afterward, when we see how the Palestinians are building their society and self-government, after we are convinced that their faces are turned toward peace, then we can move toward discussions on the exact nature of our relations,” he said. “Only then can we sign on a final peace agreement.”

Palestinian negotiator Yasser Abed Rabbo dismissed Sharon’s conditions.

“This is his new formula for not making any serious steps toward a political solution to the conflict,” he said.

When Sharon asked the party not to vote on the Palestinian state issue, the crowd erupted in boos and jeers.

Speaking before Sharon, Netanyahu criticized the government’s policies and advocated Arafat’s deportation.

“We don’t have to be afraid that the international community doesn’t see eye to eye with us. Did the international community see the danger of the Holocaust?” he asked.