Jerusalem police are holding the body of the Palestinian gunman who killed eight students at Jerusalem's Mercaz Harav Yeshiva last week until his family agrees to hold a low-key funeral without media coverage, a police spokesman said Monday. Ala Abu Dhaim, a 25-year-old Palestinian from east Jerusalem, opened fire with an assault rifle and handgun at students in the yeshiva's library Thursday evening, killing seven teenagers and a 26-year-old at the prestigious institute, considered the flagship of the religious Zionist movement. Abu Dhaim was shot dead at the scene by an off-duty IDF officer who lives nearby. The gunman's family set up a traditional mourning tent and the media showed footage of Hamas flags there, raising police fears that a big funeral could spiral into a riot by the group's supporters. "A mass funeral for a dead terrorist could create a violent public disturbance," Jerusalem police spokesman Shmuel Ben-Ruby said. Police are insisting on a small ceremony of no more than five immediate relatives, with no press coverage, a friend of the gunman's family said. "This is just another [form of] torture the family is put through. They planned to bury him [in the presence of] five relatives, as the police instructed, but the village children found out about the funeral and came, as well as several photographers," he told The Jerusalem Post. "The entire village is shocked about what happened. The father of this family kept his children inside throughout the first intifada, out of fear they would get into trouble because they were young. He had no idea what his son had in mind and his world collapsed when he found out... This is a tragedy to all of us. We're a part of Israeli society and we condemn this terror attack, but [we also condemn] the IDF's brutal operations in Gaza, and it tears us apart," the neighbor continued. On Sunday, Prime Minister Ehud Olmert instructed the National Insurance Institute not to transfer money to Abu Dhaim's family to cover the cost of the burial fees. NII spokesman Haim Fitussi said Monday that the institute was looking into Olmert's order, but that it appeared there was no legal basis to revoke the family's right to receive money for burial fees. "Three years ago, a wave of terror attacks in the area brought about a change in one of the laws and nowadays, terrorists' children and wives are not entitled to relatives' compensation. For the time being, there's nothing we can do until the family buries its son and files a request for funeral fees, a sum of a few thousand shekels. Only then we will check the family's entitlement," Fitussi said. Police said the body would be released for burial as soon as all the conditions were met. Meanwhile, the Post has learned that the Jerusalem District Police is still holding a few of the eight people it arrested Saturday on suspicion of involvement in the Mercaz Harav shooting. Jerusalem District Police chief Cmdr. Aharon Franco said that the investigation into the incident had revealed that Abu Dhaim had been conducting surveillance on the yeshiva for quite some time before the attack.