As usual when it comes to the Middle East, the Americans are attempting to distance themselves from what they are responsible for bringing about -- for what their money, guns, and policies have made possible for so long now going way back to 1967 when covert CIA help made possible Israel's lightning victory and territorial expansion. Botton line at the moment: Certainly don't believe what the Americans say, believe what the Americans do and have done....and what they don't do.

Apart from a broadcast report Thursday from the area, "to my knowledge we are unaware of that," Armitage said.

But, he told Associated Press reporters at the State Department, "We are not standing idly by."

At the White House, national security adviser Condoleezza Rice said: "It is important that neither side do anything to further inflame the situation."

On Thursday night, Armitage said, Secretary of State Colin Powell spoke on the telephone to Israeli Prime Minister Ariel Sharon to urge him to do what he could to reduce violence.

"We have been very clear the violence has to stop, the settlements have to cease," Armitage said, referring to clashes with the Palestinians and to construction at Jewish outposts on the West Bank and in Gaza.

"We have been very clear on that," Armitage said in a wide-ranging interview.

In Rome, however, Sharon warned after meeting with Italian leaders that Israel's military response to Palestinian attacks would escalate at a pace corresponding to the Palestinians'.

Sharon said the Israeli Cabinet had approved a number of steps. "I estimate that a certain amount of time will pass and we will carry them out," he said.

The Bush administration repeatedly has called on Sharon and Palestinian leader Yasser Arafat to stop a conflict that has taken a bloody toll on both sides.

Armitage said Powell, in talking to Sharon, underscored an appeal to end "bulldozing and violence and things of that nature," and that Sharon had expressed "his dismay at settlers being attacked and IDF (Israel Defense Force) soldiers being attacked."

The State Department has affirmed Israel's right of self-defense, and yet it has criticized economic measures, targeting of suspected Palestinian terrorists and bulldozing of Palestinian houses.

Asked what Israel could do that the Bush administration would not criticize, Armitage replied: "Every country has a right of self-defense. Every individual has a right of self-defense,"

But, he said, "we have constantly urged self-restraint. We have been forthright."

Sharon "knows very well that an escalation of violence is not in anyone's interest," Armitage said, and "there's a growing awareness on both sides of this question that not only are the stakes very dear but the region is very troubled."

CBS News Correspondent David Hawkins reports on the battle plan.

(CBS - 12 July) Israeli generals are planning for a possible massive invasion of Palestinian territories if the current Mideast cease-fire fails, says a published report denied by Israeli officials.

The report, published by the Jane's Information Group in London, says the goal of the action would be to destroy Palestinian armed forces and the Palestinian Authority, forcing Chairman Yasser Arafat back into exile, as he was for 12 years after the 1982 Israeli invasion of Lebanon.

The plan calls for air strikes by F-15 and F-16 fighter-bombers, a heavy artillery bombardment, and then an attack by a combined force of 30,000 men, including paratroopers, tank brigades and infantry, reports CBS News Correspondent David Hawkins.

Israel's Arab neighbors, Syria, Jordan and Egypt are expected to stay out of the fight - but the report considers the possibility that Iraq might try to intervene with troops, who would be destroyed by the Israeli airforce. It also states that Egypt could invade the Sinai peninsula, forcing Israel to call up its reserves.

The report indicates that Israel expects up to 300 of its troops to die in such an attack, with Palestinian deaths in the thousands.

Israel Troops: 185,000 Spending: $9.3 billion

Egypt Troops: 430,000 Spending: $2.1 billion

Syria Troops: 320,000 Spending: $3.4 billion

Iraq Troops: 400,000 Spending: $1.2 billion

Palestinian Authority Troops: approx. 41,000

The report says the Israeli invasion plan would be launched after another suicide bomb attack which causes a large number of deaths, like the one at a Tel Aviv disco last month.

"That there is an Israeli contingency plan to re-occupy the Palestinian areas comes as no surprise at all," said Francis Tusa, a defense analyst. "That it is being pushed up the list and that it's a leading option - this is coming as a bit more of a surprise and a worrying one."

The Jane's report indicates that the plan was presented to the Israeli cabinet on July 9. It reflects a possible change in thinking in the current government; earlier governments rejected a military solution to the Middle East dispute.

But Israeli Prime Minister Ariel Sharon dismissed the rumors of war Thursday, saying he has no plans to escalate the conflict.

"There is no imminent danger of war . I also don't see either a deterioration or escalation but I definitely see a situation in which terrorism continues," Sharon told reporters on his plane en route to his first official visit to Italy.

"People in the military get paid to make plans all the time," cautioned Hirsch Goodman, an Israeli military analyst. "There are plans and there are plans."

Foreign Minister Shimon Peres said no such plan was ever submitted or discussed. "I'm so happy to see that such an important journal has such a fertile imagination. It simply didn't happen," he told Israeli army radio.

Four Jewish settlers, including a baby, were wounded in shootings Thursday, reports CBS News Correspondent Robert Berger.

In response, Israeli tanks shelled Palestinian targets in Nablus, killing a Palestinian policeman. More than 10 tank shells exploded within seconds of each other, sending white smoke into the air over Nablus.

An Israeli military official said soldiers took over a hill overlooking Nablus. The incursion is one of only a few such incidents - which anger Palestinians - since Israel and the Palestinians adopted a U.S.-brokered truce on June 13.