Continued fighting dampens hope for Middle East peace

Palestinian boys set an Israeli flag on fire during a funeral in Gaza on Tuesday

U.N. envoy warns of regional war

From staff and wire reports

BETHLEHEM, West Bank (CNN) -- An Israeli embassy employee was wounded and two Palestinians died Tuesday as hopes for an end to the latest wave of violence in the Middle East continued to remain elusive.

The Israeli embassy employee was shot in the foot while in a car at a supermarket in Amman, Jordan, according to Jordanian sources.

The two Palestinians died following clashes with Israelis in the West Bank, according to the Palestinian Red Crescent and hospital sources.

Tuesday's fighting killed a Palestinian youth in the village of al-Kahder near Bethlehem and a man in Ramallah sources said.

The latest violence raises the death toll in nearly 10 weeks of violence to 321. Among those killed are 273 Palestinians, 13 Israeli Arabs and 35 Israeli Jews.

The Israeli army said it had no information about the reports, but said it had returned fire early Tuesday when Palestinians shot at Israeli troops near the West Bank town of Jenin, and on a Jewish settlement in the divided West Bank city of Hebron. No injuries were reported in either of those incidents, and no one was reported injured in an explosion near an army convoy in Gaza.

The Palestinian side had no immediate comment on the Israeli army reports. But each side blames the other for the start and continuation of the violence.

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On Tuesday, U.N. Middle East special envoy Terje Roed-Larsen, the Norwegian who initiated and hosted the 1993 talks that produced the Oslo accord, said that both sides must take "a leap of faith and it requires real courage. Real courage now is not to shoot but to talk."

"The situation as it is now is not tenable," he said. "It may continue the way it is right now for a few more weeks ... It could deteriorate sharply, dramatically and tragically, which may produce regional spillovers so we will face a regional war."

The violence began on September 28 when stone-throwing Palestinians and Israeli forces faced off in Jerusalem's Old City after the Muslims' Friday prayers.

A site considered sacred to three religions rests within the Old City: the hill known as the Temple Mount to Jews and Christians and Haram al-Sharif (Noble Sanctuary) to Muslims.

Israeli-Palestinian peace negotiations have stalled and nearly broken down over the status of Jerusalem and its holy sites. The Palestinians want a portion of the city as their capital, while the Israelis insist that the city remain undivided and under their control.

Israeli Prime Minister Ehud Barak ran afoul of the Knesset because he was unable to finalize a peace deal with his Palestinian counterpart, Yasser Arafat. After watching his coalition erode to minority status over the past several weeks, Barak last week headed off a parliamentary move to force early elections by announcing he would support the new vote.

With the vote likely to be held in the spring, Barak faces a stiff challenge, possibly from the man he defeated in 1999. Former Prime Minister Benjamin Netanyahu is considering a return to politics -- he withdrew from the public eye after Barak soundly trounced him in the last vote.

But Netanyahu himself faces at least one hurdle. Standing in his way, should he decide to run, is Ariel Sharon, the man who replaced him as the leader of the opposition party, Likud.

Reuters contributed to this report.

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