BETHLEHEM, West Bank (Reuters) - An end to the Israeli siege of Bethlehem's Church of the Nativity appeared within sight early Friday, with Cyprus saying 13 Palestinian militants trapped inside the shrine would be brought to the island temporarily.
The militants could stay for a few days while a permanent home was found for them, Cypriot Foreign Minister Ioannis Cassoulides said in Nicosia.
Other European diplomatic sources said Italy, Spain and other countries were willing to take in some of the Palestinians, who are on Israel's wanted list for their alleged involvement in militant attacks.
Despite the prospect of a solution to the 38-day Bethlehem stand-off, Israelis and Palestinians awaited new military action elsewhere.
Israel called up reservists and Palestinians in the Gaza Strip steeled themselves for possible attack after the Israeli government gave the army the go-ahead to hit back for a suicide bombing that killed 15 people near Tel Aviv Tuesday.
The bombing compounded obstacles to arranging an international conference on how to end the Israeli-Palestinian conflict raging since September 2000.
Acting on a pledge by Palestinian President Yasser Arafat to arrest those responsible for the bombing, Palestinian police in Gaza took the unusual step of arresting 14 members of the Islamic militant faction Hamas Thursday.
Hamas has not confirmed it was behind Tuesday's attack.
But Arafat's actions, under U.S. and Israeli pressure, was unlikely to avert an Israeli military response to the deadliest such attack since the army stormed into Palestinian-ruled towns in the West Bank five weeks ago after earlier suicide bombings.
CHURCH SIEGE CLOSE TO RESOLUTION
In Bethlehem, barriers were erected again in Manger Square and Israeli troops remained surrounding the Church of the Nativity after another deal fell through earlier in the day.
But a breakthrough suddenly emerged with the plan to take the militants first to Cyprus and then to third countries.
"I think the situation in the Church in Bethlehem is going to be resolved. I hope it will be done in the coming hours," European Union foreign policy chief Javier Solana told Reuters in Madrid.
The militants burst into the church -- built over the reputed birthplace of Jesus -- to elude Israeli troops when they reoccupied Bethlehem on April 2 during the West Bank offensive.
Trapped inside with around 40 militants were dozens of clergymen, church workers, Palestinian security men and peace activists. Under an earlier agreement, 26 of the militants were due to be removed to Gaza.
EU diplomats said elements of a deal that would lead to the other 13 militants coming out of the church had been finalized.
Cassoulides said a British aircraft would fly to Tel Aviv from a British base, at Akrotiri in Cyprus, to collect the militants. Cypriot authorities would take over on its return to Larnaca airport.
"We hope this will happen as soon as possible," he said, adding there were still some details to be sorted out.
Another EU diplomatic source told Reuters Israel had agreed to the EU plan and the militants would be flown out overnight to Cyprus before going on to other destinations early next week.
On the wider front, the Israeli government said the security cabinet had empowered Prime Minister Ariel Sharon and Defense Minister Binyamin Ben-Eliezer to mount reprisals for the Tel Aviv bomb attack.
Foreign Minister Shimon Peres said the army had decided on targeted action rather than a territorial sweep. "That is to say, attack the areas from where the suicide attackers leave or the houses from where they leave or the nests where they originate," he said on Israeli TV.
RESERVIST CALL-UP
The 163,000-strong army began calling up reservists and inducting them into their units.
"We'll do whatever we have to," one reservist in a camp outside the Gaza Strip told Israeli television. "I hope it will be OK, that we go in quietly and get out in one piece. We're ready to go in whenever Sharon says."
Many Palestinians expected Israeli forces to hit the Gaza Strip after Israeli media said the suicide bomber was thought to have come from the small, poor territory bordering Egypt.
Palestinians across the Strip made a run on food, fuel and other supplies during the day, fearing they would be trapped at home under Israeli curfew as West Bank compatriots were.
A senior leader of the Islamic militant organization Hamas in Gaza, Mahmoud al-Zahar, promised a fight if the Israelis stormed the area. "We will defend ourselves and our people with all our might and capabilities," he told Reuters.
Saeb Erekat, Arafat's chief negotiator, said an Israeli army thrust into the Gaza Strip would be disastrous.
"It is like adding fuel to fire. We warn against the catastrophic human and environmental consequences of such an attack on the Gaza Strip, which is the most densely populated area in the world," Erekat told Reuters.
At least 1,345 Palestinians and 473 Israelis have been killed since a Palestinian revolt began after talks on a Palestinian state stalled in mid-2000, a few years after Palestinians won self-rule under interim deals.