A special Middle East envoy, James D. Wolfensohn, has criticized the Israeli government for moving slowly on issues important to the economic future of the Gaza Strip and warned that "disturbing signs of internal fragmentation" within the Palestinian Authority are undermining efforts to improve security and attract foreign investment.

Wolfensohn's assessment came in an Oct. 17 letter to Secretary General Kofi Annan of the United Nations and senior diplomats of the European Union, Russia and the United States -- the so-called Quartet working to promote a new Israeli-Palestinian peace process. The former head of the World Bank has been working on behalf of the Quartet on issues related to Israel's recent withdrawal from Gaza.

Wolfensohn said Israel had failed to move forward on proposals to improve various crossings between Israel and Gaza, to arrange passage between the strip and the West Bank and to accept European supervision of the Egypt-Gaza border crossing. "In the meantime, the flow of workers and goods from Gaza to Israel has ground to a halt," he wrote.

"In substance, the parties are not far from agreement, but they are finding that old habits die hard," Wolfensohn wrote in the letter, a copy of which was provided to The Washington Post after details were first reported Monday in the Israeli newspaper Haaretz.

"The Government of Israel, with its important security concerns, is loath to relinquish control, almost acting as though there has been no withdrawal, delaying making difficult decisions and preferring to take difficult matters back into slow-moving subcommittees," the letter said. "The Palestinian Authority has undergone further erosion in its capacity to cohere around key issues, and in some cases must come forward with creative proposals of its own."

Israeli soldiers, meanwhile, killed a top military leader of the militant group Islamic Jihad in a raid Monday that Palestinian officials warned would complicate peace efforts.

Luay Saadi, said to be 26, was wanted by Israel for his alleged role in planning two suicide bombings and other attacks that killed a dozen Israelis and wounded 150 others. Islamic Jihad officials said Saadi was the top military commander in the West Bank. A second senior Islamic Jihad fighter was killed in the shooting, which occurred in the West Bank city of Tulkarm after Israeli officials said the men tried to escape.

Islamic Jihad, which has refused to recognize Israel, signed on to a temporary cease-fire in March that required an end to offensive operations against Israel. But the group's compliance has been inconsistent, and Israeli troops have killed a number of its fighters during that time.

In a statement posted on its Web site, the group's military wing said the calm ushered in with the cease-fire "will go to hell without return."

"We will not remain with our hands tied," it said. "The enemy will see what was seen by our martyr."

Hours later, Islamic Jihad fighters in Gaza fired rockets into southern Israel. No casualties were reported. Israeli military officials said the army later fired artillery toward the source of the rocket fire.

[Early Tuesday, Israeli aircraft fired missiles at a building in northern Gaza used by militants and at a second building housing an Islamic Jihad welfare institution in the Rafah refugee camp in southern Gaza, the Israeli army said, according to the Associated Press. Palestinian officials said civilians were injured in the Rafah attack.]

"We're back in the same cycle of violence," said Saeb Erekat, the chief Palestinian negotiator.

Mark Regev, a spokesman for Israel's Foreign Ministry, said the government would take up discussion of the Gaza passages after Jewish holidays end this week. He said Israel was moving slowly because easing controls with the security situation still tenuous could harm the process.

"If Israel tomorrow allowed unimpeded passage at the crossings, I think everyone believes that would have negative consequences all around," he said. "There would likely be a series of suicide bombings and we would have to respond."