In a cement-block building just outside the Shati refugee camp, the voices of a kindergarten class chant principles from the Koran, the Muslim holy book.
Upstairs, young men in trim, dark beards are playing Ping-Pong in a recreation room aimed at giving the "sons of the camps" a place to go. Such social activities unofficially run by Hamas, the Islamic Resistance Movement, were virtually the only institutions left untouched last May when the arm of Palestinian Authority (PA) leader Yasser Arafat swept through the West Bank and Gaza to dismantle the organization.
Hamas had become too much of a liability after its militant branch went on a nine-day bombing spree in Israel to show its opposition to the peace process.
But today, Mr. Arafat - who is at odds with Israel over moves by Prime Minister Benjamin Netanyahu to expand Jewish settlements in the West Bank and Gaza - is slowly easing the reins on Hamas.
With more Palestinians feeling that the seven-month-old government in Israel is lurching further away from the land-for-peace tenets of the autonomy accords, Arafat is trying to ensure he won't lose support among the disenchanted by weaving the rejectionists back into the Palestinian political fabric.
And by easing up on the fundamentalist group, he sends a warning to Israel that if it doesn't continue with the Oslo peace accords, he could unleash radical rejectionist groups.
Tensions soared between the PA and Israel last week after a radical offshoot of Arafat's Palestine Liberation Organization, the Popular Front for the Liberation of Palestine, took responsibility for a drive-by shooting that killed a Jewish mother and her 12-year-old son on their way home to a West Bank settlement. On Friday, Israel reinstated economic incentives for Jews living in the territories, which had been suspended four years ago. Arafat then encouraged Palestinians to defend Arab lands "with all means possible."
Also, with Arafat's permission, more than 10,000 Hamas supporters rallied here Friday to celebrate the ninth anniversary of the group's founding. Backers held up pictures of their spiritual leader, Sheikh Ahmed Yassin, who is serving a life sentence in an Israeli jail. But the podium also bore a large poster of Arafat, an unprecedented addition at the gathering of a group that has blasted his peace deals with Israel as a sellout of the Palestinian cause. Palestinian TV - reportedly closely controlled by Arafat - gave full coverage.
Arafat has held out a few other olive branches to Hamas, recently freeing several known activists from PA jails. Just in time for the rally in the Gazan city of Khan Younis, its local Hamas leader, Sheikh Ahmed Nemer, was released, too. There, Hamas leader Mahmoud al-Zahar told the crowd that it would soon be opening an official political office - a message that Arafat was allowing Hamas to come back from political exile.
"We have to work together in our activities to oppose settlement by all means," Mr. Zahar says. Hamas is taking advantage of Arafat's fear that if the self-rule accords collapse, he will be to blame. "We are carrying hope for the people that if the peace process fails, we will play a very important role," Zahar says.
Arafat has tried in the past to turn Hamas away from militancy and into a political party. But the movement rejected the suggestion and refused to run in the January elections for the Palestinian legislative council.
Arafat gave up on engaging Hamas in a dialogue of reconciliation after the bombings brought Israeli and international pressure to destroy the Hamas infrastructure.
Palestinian sources say Arafat made Hamas effectively illegal. Institutions were raided, and newspapers were shut down. PA agents monitored bank accounts with large sums coming in from abroad in an attempt to cut off funding for Hamas from wealthy Islamists in the Middle East, Europe, and the United States.
Hamas has used some of its funds to gain favor with the poor by providing health, education, and social-welfare services. Now, some in the movement speak of a distance from the military wing, insisting that Hamas is moving toward an emphasis on political and social activities.
This is a product of the blame that some Palestinians place on Hamas for achieving little through its bombings - which brought stiff Israeli travel closures that stifle economic life and brought down the Labor government of Shimon Peres, an architect of the self-rule accords.
Hamas leaders acknowledge they may have lost some support as a result. "Sometimes we make mistakes," says Ghazi Hamad, the former editor of al-Wattan, a Hamas weekly Arafat closed down. "Hamas is rethinking its policy, especially toward the PA."