RAMALLAH, WEST BANK -- Thousands of Palestinians gathered near Yasser Arafat's grave in his old West Bank compound yesterday for a subdued commemoration of their iconic leader's death exactly one year ago.

Palestinian president Mahmoud Abbas, his successor, led a rally attended by top officials from major Palestinian factions and a handful of foreign diplomats in honour of Mr. Arafat, who died at 75, having failed to realize his dream of a Palestinian state.

The focus of the official commemoration was Mr. Arafat's old headquarters in the West Bank city of Ramallah where he spent his final years isolated and encircled by the Israeli army.

"I renew the pledge to continue on the path that he started and exert whatever efforts are needed to raise the flag of Palestine on the walls, the minarets and the churches of Jerusalem," Mr. Abbas said in a speech at the rally.

Mr. Abbas, like many in the crowd, wore the traditional Palestinian kaffiyeh scarf that became Mr. Arafat's trademark. Pictures of Mr. Arafat were held by many in the crowd.

Mr. Abbas earlier laid the foundation stone for a new mausoleum complex while verses from the Koran were broadcast over loudspeakers.

Many shops in West Bank cities stayed closed, with portraits of Mr. Arafat adorning their shutters. Smaller ceremonies were held in Bethlehem and Hebron. In the Gaza Strip, a low-key memorial gathering was held on Thursday night.

Mr. Arafat, a former guerrilla leader who won a Nobel Peace Prize and the deep admiration of his people only to sink into renewed conflict with Israel, left a complicated legacy.

His death, after years of being shunned by the United States and Israel, who considered him an obstacle to peace, stirred hope for a revival of peacemaking for the first time in years. There is still no clear-cut explanation of what killed him. The Percy Military Hospital in Paris, which treated him, has not clarified matters, and its medical records on Mr. Arafat, recently leaked to reporters, have proved inconclusive.

Rumours persist that Arafat died of AIDS or was poisoned by Israel, a charge Israel denies.

Mr. Abbas was elected in January on a platform of non-violence and forged a ceasefire agreement that smoothed the way for Israel's withdrawal from the Gaza Strip after 38 years of occupation.

But flare-ups of fighting have dampened immediate prospects for any real breakthrough toward peace.

While putting the onus on Israel for its continued grip on the West Bank, Mr. Abbas called on militants to adhere to the truce and warned that violations "will not be tolerated."

In a sign of continuing tensions, Israeli gunners shelled an open area in north Gaza yesterday after militants fired a rocket into southern Israel. No damage or casualties were reported.

Although lawlessness has risen in the Palestinian territories in recent months, Mr. Abbas, 70, has avoided the collapse into anarchy that many had feared.

But he continues to struggle with the fallout from Arafat's long, autocratic rule and his corruption-ridden administration. Israeli Prime Minister Ariel Sharon, in response to recent Palestinian attacks that drew Israeli missile strikes in Gaza, has ruled out talks until Mr. Abbas reins in and disarms militants.

Israeli Foreign Ministry spokesman Mark Regev said Palestinians now had a chance to escape from a "situation of corruption and terror" that he blamed on Mr. Arafat.

"Abbas believes that terror is not the answer. He goes by the motto of 'one authority, one law, one security service,' " Mr. Regev said. "But we don't see him putting this motto into use."

Mr. Abbas is reluctant to challenge the armed groups, fearing civil war, and says Israel's continued settlement expansion in the West Bank is a major obstacle to peace.