An even more violent regional blow-up can now be expected down the road, one in which quite possibly even the House of Saud itself will become victim -- in which case at least that particular aspect of the overall outcome could be considered positive.

WASHINGTON (AP - 25 February) - Secretary of State Colin Powell encouraged Crown Prince Abdullah of Saudi Arabia to keep working on his proposal for peace with Israel and drew support from the European Union in urging Yasser Arafat to curb violence.

``We share the same concerns about the terrible situation in the Middle East, and all of our exchanges have led to a complete agreement in point of view,'' the Spanish Foreign Minister Josep Pique said after talking to Powell on Monday.

It is important to reduce the violence, increase security and ``for the Palestinian Authority to make all efforts necessary to cut back violence,'' Pique said at a news conference with Powell.

The Spanish minister's statement echoed the persistent U.S. demand that Arafat do more to control Palestinian militants. It had special meaning because Spain is currently president of the European Union.

But Pique tempered his demand with the observation that making a 100 percent effort depends on a ``100 percent capacity'' - a reference to Israel's restrictions on Arafat that critics say limit what the Palestinian leader can do to end violence.

Powell made a round of telephone calls Sunday to try to halt the fighting. He spoke to the Saudi crown prince, Israeli Prime Minister Ariel Sharon, Palestinian leader Yasser Arafat, King Abdullah II of Jordan, Foreign Minister Ahmed Maher of Egypt and Javier Solana, the European Union's senior diplomat, who is in the area.

The aim, Powell said, ``is to find our way out of this terrible situation.''

The Saudi proposal, which the prince floated in the Saudi and American media, offers recognition, trade and security to Israel in return for giving up the West Bank, Gaza and part of Jerusalem.

``I think it's an important step that we have welcomed,'' Powell said. ``I wanted to share with the Crown Prince our reaction to his idea and hope that in the weeks ahead it will be flushed out in greater detail.''

Powell's positive response and State Department spokesman Richard Boucher's description of the proposal as significant reflect a U.S. judgment that it marks an important evolution in Saudi thinking.

The proposal shows that the Saudis are willing to recognize an Israeli right to part of Jerusalem and that they, above all, are considering peace with the Jewish state, a U.S. official said.

Several Israelis and Palestinians were killed Monday in gun battles in Jerusalem and on the West Bank. Spokesman Boucher repeated the U.S. demand that the Palestinian Authority make ``maximum efforts'' to curb attacks on Israel and said Israel should make it easier for Palestinian workers to move around despite security controls.

Abdullah's proposal, which he floated in the Saudi and American media, offers Israel recognition, trade and security if it will give up all of the West Bank, Gaza and East Jerusalem.

Jordan and Egypt lost the territories in the 1967 Mideast war, and the Arabs want to turn the land over to the Palestinians for a state with its capital in Jerusalem.

Powell called the proposal an important step. He said he shared his assessment with the crown prince and told him he hoped ``in the weeks ahead it would be flushed out in greater detail.''

But Powell also indicated a swap would not be a simple matter. For one thing, Abdullah has proposed Israel return to its pre-1967 borders, but Powell said there are various ways to interpret U.N. resolutions adopted at the end of the Mideast war that year that called for an Israeli pullback.

The United States and Israel supported the resolutions, which were reaffirmed after the 1973 Middle East war, only after the English-language text referred to withdrawal from ``territories'' not ``the territories,'' which would have implied all the land the Arabs lost in the 1967 war.

The Arabs and many of their supporters insist now, as they did then, that the resolutions require a total pullout.

JERUSALEM, Feb 26 (Reuters) - Israeli Defence Minister Binyamin Ben-Eliezer welcomed a Saudi peace proposal on Tuesday and said efforts were under way to resume Israeli-Palestinian security talks, despite a new spasm of violence.

"It should be looked at positively," Ben-Eliezer's spokesman quoted him as saying about the Saudi initiative during a meeting with Javier Solana, the European Union's foreign policy chief.

"It has new elements and it should therefore be encouraged and must not be rejected," the defence minister said, apparently referring to the pan-Arab aspect of the proposal by Saudi Arabia's Crown Prince Abdullah.

The plan, floated by the kingdom's de facto ruler in a peacemaking void, calls on Arab states to recognise Israel and normalise relations with it in return for a full Israeli withdrawal from lands occupied in the 1967 Middle East war.

Hailed by the Palestinians and praised by Washington, the initiative has been gaining international momentum in the face of violence in which at least 892 Palestinians and 277 Israelis have been killed since September 2000.

Israel has accepted the principle of land-for-peace in negotiations with the Palestinians, but has said it will never return to pre-1967 lines, borders that it considers dangerous to its security.

In the latest bloodletting, two Palestinians and two Israelis were killed in the West Bank on Monday. Two pregnant women, one an Israeli and one a Palestinian, were wounded but survived and later gave birth.

An Israeli policewoman died from her wounds overnight in a Jerusalem hospital after she was shot trying to prevent an attack by a Palestinian gunman in which 10 Israelis were hurt.

The killings ended a four-day lull and followed a week of the most sustained violence since the Palestinian uprising against Israeli occupation began.

After meeting Solana on Monday, Palestinian President Yasser Arafat agreed to a resumption of security talks with Israel. No time or date was announced for the meetings, which the Palestinians suspended on Sunday after Israel said it would continue to keep Arafat bottled up in the West Bank city of Ramallah. The last session was held last Thursday.

"This is a request from our friend, Javier Solana, and I cannot say no to Solana's suggestions," Arafat, confined by Israel for nearly three months, told a news conference. Ben-Eliezer told Solana he was taking action to renew the security talks as soon as possible.

Prime Minister Ariel Sharon's office quoted him as saying earlier in a telephone conversation with U.S. Secretary of State Colin Powell that Israel "will take all necessary measures to protect its citizens" following the latest bloodshed. But Israel Radio said Sharon was holding off retaliating for now because of diplomatic pressure.

The Israeli army said it had arrested four Palestinians in the West Bank overnight who were suspected of involvement in "terrorist activities" but gave few details.

On Monday, Israeli President Moshe Katzav invited Crown Prince Abdullah to Jerusalem to discuss the Saudi initiative. Katzav's spokeswoman said the president, who holds a mostly ceremonial position, was ready to go to Saudi Arabia if invited.

Arafat said he "appreciated and supported completely" the Saudi effort.

Sharon has made no public comment on the plan, which Israeli commentators said could be an attempt by Riyadh to improve its standing with the U.S. government after the September 11 attacks on the United States carried out mainly by Saudi nationals.

Raanan Gissin, a spokesman for the prime minister, called the proposal a positive development.

The United Nations Security Council was expected to start a debate on Tuesday on how to stem the violence and then hold talks on Arab demands for a resolution putting heat on Israel.

A draft resolution circulated by Arab envoys dropped provisions calling for outside monitoring, a demand that would be certain to draw a U.S. veto. It seemed to give a nod to the Saudi initiative, calling for the establishment of a Palestinian state and "normal relations among all states of the region."

OCCUPATION OR PROSPERITY

[Ha'aretz Editorial , 20 February] The data on the economy and unemployment published yesterday is very grave. Unemployment reached an unprecedented 258,600 in the last quarter of 2001, representing 10.2 percent of the work force, while the number of job-seekers also reached a new high - 209,300 in January. Unemployment not only deepened, it expanded: In January there were 24 townships where unemployment topped 10 percent, compared to 15 in 2001. The high unemployment rate is a direct result of the deepening recession. In the last quarter of 2001, local production dropped by 7.2 percent while commercial production plummeted by 12 percent. There were similar dramatic declines in investment and private consumption.

When data like this is reported, a series of automatic reactions follows. Politicians from the left and right are shocked. Histadrut chairman Amir Peretz called for an emergency team to fight unemployment, while Manufacturers Association President Oded Tirah issued a series of recommendations that would mostly help industrialists. But nobody dares touch on the real reason for the crisis: the lethal conflict between Israel and the Palestinian Authority.

The world economic crisis, which began with the bursting of the high-tech bubble and deepened after the terror attacks in the U.S., is shaking Israel's economy. Obviously, a small country cannot influence such global trends. But Israel is also not doing anything in those areas where it can shape its own destiny. The country's leaders continue to ascribe to the ethos of settlement in the territories, even when it is clear that the price of that stubbornness is disastrous - politically, militarily and economically.

The data is evident for all to see: After the Oslo agreements with the Palestinians were signed in 1993, a period of growth began in Israel, including unprecedented foreign investment. Unemployment dropped from 11 percent to a welcome low 6.5 percent - at a time when immigration from the former Soviet Union was at full swing and 200,000 foreign workers came to Israel. There was plenty of work for everyone. When Israel shows up on the TV screens as a terror-struck state, as it did during the 1996 terror attacks, the conflict over the Hasmonean Tunnel in Jerusalem under Benjamin Netanyahu's administration, and, of course, the last 16 months, the economic result is clear: recession and rising unemployment.

In the past year, it has become increasingly clear that it is impossible to conduct a normal economy while the state's resources are aimed at perpetuating the occupation and the settlements in the West Bank and Gaza Strip. The real remedy for the economic crisis will be found when Israel deals with the root causes of the conflict with the Palestinians. Only a determined effort to reach reconciliation between the two peoples, based on ending the occupation and the establishment of a Palestinian state beside the state of Israel, can result in peace and economic prosperity. By promising it can have the territories as well as peace, security and prosperity, the government is deceiving the public.