A car loaded with explosives blew up near the Israeli Embassy on Wednesday after guards prevented the driver from parking outside the embassy building. Three people were killed and 15 were injured.
Police said the car was rigged with about 300 pounds of dynamite. Cyprus' interior minister, Khristodoulos Veniamin, said: "It is clear the embassy was the intended target of the car bomb."
There was speculation that the attempt to blow up the embassy was to avenge the assassination of Khalil Wazir, the PLO's military chief, who was killed April 16 in Tunis by suspected Israeli agents.
However, the Palestine Liberation Organization's office in Nicosia issued a statement denying involvement in the explosion, saying it "strongly condemns this ugly crime."
Police said the driver of a Mitsubishi tried to park outside the four-story embassy building twice but was told by guards that he had to move. When asked for his identification, the driver took off at high speed and rammed another car at an intersection. Seconds later, the car exploded.
The fiery blast, about 200 yards from the embassy, killed the car's driver and two Cypriots.
The car's owner, a Lebanese, was in the vehicle but ran away just before the explosion. He was arrested and "is expected to assist police in their investigations," Veniamin said.
Police identified the arrested man as Omar Ahmad Hawillo, 28, a student at a Nicosia college who had arrived from Lebanon on March 21.
The car was blown apart by the explosion, which set four other vehicles on fire. Police said a briefcase containing a remote-control detonating device was found nearby.
The charred remains of the driver were found 400 yards from the wreckage. Windows were shattered in the area and some of the embassy's windows were blown out. The embassy's press officer, Ben Matiatu, said no one in the building was hurt.
Police said the two Cypriots killed in the blast were a woman who was trapped in her burning car and a pedestrian.
An anonymous caller telephoned a Mideast bureau of NBC-TV to claim responsibility for the explosion in the name of the Palestinian terrorist Abu Nidal.
In Jerusalem, an Israeli Foreign Ministry statement said that "the explosion, in the wake of which innocent Cypriots were hurt, was another attempt to exploit the soil of Cyprus for terrorist attacks against Israel."