However, Israel welcomed the surprise announcement as a sign the Arab world is changing for the better.

Iraq's US-installed interim Governing Council said it risked being robbing of an opportunity to explain the transition process from occupation to independence ahead of reclaiming its place in the league.

"We strongly regret this postponement because the Arab nation is passing through a delicate and dangerous phase," said council member Muaffak al-Rubaie.

Tunisia stunned Arab foreign ministers late Saturday by calling off the summit it was to host from Monday, an unprecedented move it said resulted from a failure to include its changes to a plan on Arab political reform.

The Arab League swiftly accepted an offer from Cairo on Sunday to take over and host the gathering -- the first formal gathering of Arab leaders since the US-led overthrow of Saddam Hussein last April.

However, the meeting was already looking to be overshadowed by Israel's assassination of the spiritual leader of the radical Palestinian militant group Hamas, Sheikh Ahmed Yassin, and US pressure to reform the region.

In the West Bank town of Ramallah, Palestinian negotiations minister Saeb Erakat worried the infighting came after Yassin's assassination in Gaza on Monday and a US veto of a UN Security Council resolution to condemn the hit.

"We are afraid that this will allow Israel to carry out even bigger or large-scale actions against the Palestinians," he said.

Arab leaders have universally condemned Israel's killing of Yassin and the Palestinians had been hoping that the Tunis summit would increase diplomatic pressure on the Israelis.

The new leader of Hamas, Abdelaziz Rantissi, also told AFP that Arab leaders had failed to rise to the challenge posed by Yassin's death.

"We were hoping that the Arab nations would rise to the challenge but we have seen them pull back," he said.

The speaker of the Lebanese parliament, Nabih Berri, said the postponement amounted to another blow against Yassin.

"The summit's cancellation was a second death blow for Sheikh Yassin," Berri said. "Arab leaders gave Israel a way out of the crisis."

Israel itself was delighted.