(Updated from 10:38 a.m. EDT)

Rising tensions in the Middle East knocked the wind out of an early morning rally on Wall Street.

In response to the killing of two soldiers, Israel launched helicopter attacks on targets near the Gaza headquarters of Palestinian President

Yasser Arafat

. Israel also launched attacks against the West Bank city of Ramallah.

In addition to what's happening within Israel, at least four Americans were killed when a U.S. Navy destroyer refueling in the Yemeni port of Aden was hit by a terrorist attack.

Our partners in Israel at

TheMarker.com

have been weighing in on the mood in the Middle East and how investors in that region are

reacting to the recent tumult.

The price of oil shot higher on the news -- crude was lately up $2.00 a barrel to $35.25, just shy of its Sept. 20 high of $37.20. Stocks took the opposite tack. After being as high as 1374 this morning, the

S&P 500 was lately down 24 at 1341. The

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Nasdaq Composite was down 45 to 3123. The

Dow Jones Industrial Average dropped more sharply, off 307 at 10,108.

Predictably, energy and oil services stocks have rallied. The

Amex Oil and Gas Index

was up 2.7%. The

Philadelphia Stock Exchange Oil Services Index

was up 3.4%.

For more on oil prices, take a look at

TheStreet.com/NYTimes.com's

joint newsroom's

recent story.

Treasuries, under pressure earlier as stock futures rallied, were sharply off their lows shortly after 9 a.m. EDT. The 10-year was lately up 22/32 at 100 3/32, dropping the yield to 5.736%. As the world's safest and most liquid asset,

Treasury securities typically rally in response to reports of international strife.