Sharon: Palestinians must crack down on terrorists
'Diplomatic progress' threatened
Israeli and Palestinian officials insist the cease-fire stands.
A suicide bomber attacks a Tel Aviv nightclub.
JERUSALEM (CNN) -- There will be "no diplomatic progress" in the Israeli-Palestinian peace process unless the Palestinian Authority takes "vigorous action" against local terrorists, Israeli Prime Minister Ariel Sharon said Sunday.
His comments follow a suicide bombing outside a Tel Aviv beachfront nightclub on Friday that killed four people and injured at least 65 just three weeks into a fragile cease-fire.
"While the state of Israel is interested in advancing toward a settlement with the Palestinians, there will be no diplomatic progress, no progress, until the Palestinians take strong action to eliminate the terrorist organizations and their infrastructures in the Palestinian Authority areas," Sharon said during his regular Sunday Cabinet meeting.
"It is clear that if the Palestinians do not begin to take vigorous action against terrorism, Israel will be compelled to step up military activity that is designed to protect the lives of Israeli citizens."
He said that although the attack is believed to have been ordered by terrorists based in Syria, that does not relieve the Palestinian Authority of its obligation to take action.
"The terrorist attack was perpetrated by members of Islamic Jihad," Sharon said. "The orders came from Islamic Jihad elements in Syria. Even though we know this for a certainty, the fact is not enough to absolve the Palestinian Authority of its responsibility for the departure of the terrorist and of its obligation to act against his partners in the crime.
"The immediate test for the Palestinian Authority will be in vigorous action against Islamic Jihad members."
The Palestinians, however, urged Israel not to let those who aim to undermine Middle East peace achieve that objective.
While Israelis would not say whether military action against Syria is planned in the wake of the bombing, Zeev Boim, deputy defense minister, told CNN such strikes would not be unprecedented and remain possible, although international pressure would be preferred and more effective.
"According to our intelligence -- and we have very good intelligence -- this last horrible, thorough attack in Tel Aviv came directly from the headquarters of Islamic Jihad in Damascus," Boim said.
Islamic Jihad has a presence in Syria and is considered to be under that country's patronage.
On Saturday, Damascus denied any link to the bombing and said the Damascus office of Islamic Jihad had been closed, according to Reuters news agency.
Designated as a terrorist group by the U.S. State Department, Islamic Jihad is opposed to Israel's existence and has long waged an armed struggle against the Jewish state.
The defense minister concluded that plans to transfer Palestinian towns from Israeli to Palestinian Authority control will be frozen until the next assessment.
At that time, Israel will examine whether Palestinian President Mahmoud Abbas' government has taken the necessary steps against Islamic Jihad and all terror organizations. It is not known when the next assessment will be.
Sharon spoke by phone with U.S. Secretary of State Condoleezza Rice and told her that "as of now (Abbas) has taken no practical measures against terrorism, and added that without active steps by the Palestinians, there will be no transition towards implementing the first stage of the road map," according to a statement from his office.
The road map -- sponsored by the United States, Russia, the United Nations and the European Union --calls for an end to Israeli-Palestinian violence, followed by a "final and comprehensive" settlement of the conflict and the creation of an independent Palestinian state.
Chief Palestinian negotiator Saeb Erakat called on Israel not to let the attack ruin the cease-fire agreed upon several weeks ago at a summit in Egypt.
"Those who planned the attack in Tel Aviv, which we condemn in the strongest possible terms, had the objective of stopping and undermining the peace process, and they should not win," Erakat said. "We should continue the process of negotiation."
While there had been initial conflicting information over who was responsible for Friday's attack, signs on Saturday began to point at Islamic Jihad.
An unnamed reliable Islamic Jihad source told CNN that the group's leadership in Damascus and Beirut is taking responsibility.
However, Islamic Jihad members in the Palestinian territories continue to deny any involvement in the suicide bombing, which authorities say was detonated by a 22-year-old university student.
Nonetheless, Israeli authorities are preventing the Islamic Jihad representative from the Palestinian territories from leaving for Cairo for talks between the Palestinian organizations, Mofaz said.
Earlier, the Al-Aqsa Martyrs Brigades, a militant group associated with the Fatah movement headed by Abbas, has also denied responsibility.
Also Israeli and Palestinian officials earlier were saying they suspected the militant group Hezbollah, which operates out of southern Lebanon.
Abbas was quick to blame a "third party" for the blast and vowed to capture the perpetrators.
Palestinian and Israeli authorities have arrested seven people in connection with the blast.
CNN's Guy Raz and Yoav Appel contributed to this report