The Bush administration is considering a range of options, reports CBS News White House Correspondent Peter Maer. Interim steps to cutting ties could include closing down Palestinian offices in the United States.
Speaking with reporters on the deck of a Coast Guard cutter in Portland, Maine, the president bluntly said he's disappointed in Arafat.
"He must make a full effort to rout out terror in the Middle East," President Bush said. "In order for there to be peace he's got to rout out terror. Ordering up weapons that were intercepted on a boat headed for that part of the world is not part of fighting terror, that's enhancing terror."
He's especially angry over the recent shipment of arms to the Palestinians and specifically how Arafat denied knowledge of the weapons shipment intercepted by Israel.
However, CBS News White House Correspondent Mark Knoller points out that earlier this month, asked about cutting ties with Arafat, Mr. Bush said "I think its very important for our administration to remain engaged with both parties."
Learn more about the history of the Arab-Israeli conflict.
In a private White House session, President Bush and his national security team discussed various options, which also include closing Palestinian Authority offices in Washington, sending U.S. Middle East envoy Anthony Zinni to suspend his peacemaking mission and placing Arafat's personal security force on the State Department's list of terrorist groups, according to several government officials who spoke on condition of anonymity.
Palestine Liberation Organization Ambassador Hassan Abdel Rahman said U.S. officials had told him they were studying their policy but he did not believe PLO offices would be shut.
"I know that the administration realizes how dangerous the repercussions would be for any action such as the one called for by the pro-Israeli offices in this country," he said.
"I think we'd better be very careful here before we start cutting off relationships, because of the questions that follow," said Sen. Chuck Hagel, R-Neb., a member of the Senate Foreign Relations Committee. What is the alternative? Who then do you deal with?"
"Yasser Arafat has proven himself to be either an ineffective leader or a terrorist," countered Rep. Jeff Flake, R-Ariz., a member of the House International Relations Committee. "Whatever the case may be, Arafat can no longer be trusted to broker peace."
Mr. Bush laid out the evidence against the Palestinian Authority in a letter last week to Saudi Arabia's Crown Prince Abdullah, Egyptian Pesident Hosni Mubarak of Egypt and Jordan's King Abdullah.
U.S. officials confirmed in general that options were being discussed for policy toward the Palestinians but declined to elaborate on what the options were.
"We're constantly assessing the situation. We have been and continue to do so," said White House spokesman Ari Fleischer.
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