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Shattering U.S. hopes for Mideast calm before a Desert Storm redux against bin Laden-linked terrorism, a spasm of fresh bloodletting has left truce hopes trampled, sparking renewed debate in Israel over the unending conflict with the Palestinians.

Initial hopes had been dim at best for the largely virtual cease-fire affirmed last week by Palestinian leader Yasser Arafat and Foreign Minister Shimon Peres.

A weekend of violence boded poorly for the potential longevity of the truce, as IDF soldiers shot dead nearly a score of Palestinians in weekend rioting.

But all optimism was quashed this week, after successive days in which Islamic Jihad militants set off a car bomb near a crowded shopping area of Jerusalem, Hamas gunmen shot up Alei Sinai, a Gaza Strip settlement, killing two Israelis and wounding 15, and, in response, IDF forces backed by tanks seized a swath of the northern part of the Strip, in the process killing at least six Palestinians.

Israeli leaders, nominally apolitical President Moshe Katsav among them, were unusually blunt in verbal assaults Wednesday on Arafat, viewed by Israel as having reneged on pledges to rein in and arrest militants in his midst.

Officials hinted that if the Palestinian Authority chairman failed to make good on understandings that he would round up "ticking time-bombs" in the form of fundamentalist Islamic and radical rejectionist terrorist commanders, Israel would reactivate its controversial policy of targeting and "terminating" suspected militants.

"The principle is very simple," said Prime Minister Ariel Sharon's cabinet secretary Gideon Sa'ar, speaking in general terms of a decision taken by an emergency overnight cabinet session. "We prefer that the Palestinian Authority prevent terrorism from its territory, but if it doesn't do it, our security forces will."

Katsav was quoted as saying in the wake of the attack on Alei Sinai settlement that, "It's either one or the other - either Arafat is undeserving of being the leader of the Palestinians, or he is incapable of being our partner for negotiations. Either way, the conclusions are sad."

Rightists were less circumspect, some calling outright for Arafat's head, others insisting that Israel should act to depose Arafat and topple his entire Authority.

Hawkish MK Zvi Hendel, himself a member of a Gaza settlement, charged that Authority security men had taken a direct hand in preparations for the Alei Sinai attack: "Arafat's Preventative Security apparatus was involved in the preparation of the incident, in the planning, and in the training of the personnel."

Palestinian Preventative Security, an outgrowth of the moribund Oslo peace accords, was set up as the counterpart and colleague of Israel's Shin Bet secret service in heading off terrorism and fighting other extremist activities.

Not to be outdone, cabinet minister Tzachi Hanegbi of Sharon's Likud said that Arafat should not be the only local leader to take a "prolonged vacation" - declaring that there was no longer room in the cabinet for Foreign Minister Peres. "He should take along with him the mistaken, dreamy-eyed point of view that sees Arafat and the PA as our ally in fighting terror. We should at long last set out our goal of viewing Arafat as the head of a terrorist gang ... Yasser Arafat as the target of an all-out military and diplomatic struggle against terrorism."

Labor cabinet minister Matan Vilnai spoke for his party cohorts in countering that not only should Peres stay at his post, the foreign minister should again meet Arafat as scheduled Friday for further truce talks.

For their part, doves confessed that their peace hopes lay largely dashed. But their disillusionment had not prompted them to abandon such positions as advocating a unilateral withdrawal from the Gaza Strip.

"I admit that I once had hopes and that perhaps I today have none," said Meretz party Knesset faction chair Zehava Gal-On. She added, however, that Israel should pull out of the Strip, saying that the Hamas raid had underscored the impossibility of keeping the settlers there secure "even with the 6,000 soldiers deployed in the strip in order to defend (the area's) 6,000 settlers."

Palestinian officials denounced the bombing and the Alei Sinai raid, promising to punish those responsible for the operation.

The Wednesday incursion, however, spurred renewed Palestinian charges that Israel would use any pretext to undermine the cease-fire. Palestinian Information Minister Yasser Abed Rabbo said Israel's aim is to continue the assault on Palestinian people because the coalition of evil between Sharon and his army leadership has one program, which is war, and they want to avoid any political solution."

According to Ha'aretz military editor Ze'ev Schiff, Arafat now faces a true test of his oft-stated commitment to the cease-fire.

"Arafat has succeeded in achieving his initial goals of conducting negotiations while the violence continues and getting Israel to order its army to abstain from initiating military operations and even continuing to ease restrictions in the territories, including the lifting of closures," Schiff writes in Wednesday's paper.

Although all signs point to Hamas, the Islamic Jihad, and other rejectionist groups - rather than the Palestinian Authority - as the cause of the most recent attacks, Schiff concludes, the true test for the Authority "is not the artificial distinction made by Israel between it and the opposition forces, but rather what measures it takes against those who breach the 'cease-fire' - actions such as arresting and putting on trial the attackers, rather than making do with warnings and general criticism."