Rabin trapped by Knesset crisis as Israel prepares to recognise old foe

would recognise the Palestine Liberation Organisation on certain terms.

He also warned that the resignation of Interior Minister Arye Deri

earlier today could harm the chances for Middle East peace at a crucial

juncture.

''Concerning our demands from the PLO and all that concerns

recognising it . . . I hope it will be agreed but I don't want to commit

(myself),'' he told reporters at a reception for foreign diplomats. ''We

are ready to recognise them under certain conditions.''

Until Rabin came to power in July last year, Israel banned all contact

with the PLO, long considered a terrorist group devoted to wiping out

the Jewish state.

Rabin reversed the ban and, in secret contacts, Israeli and PLO

officials reached a landmark agreement on principles for Palestinian

self-rule in the occupied territories, an accord that could lead to a

comprehensive Israeli-Arab peace settlement.

Rabin did not spell out his conditions for recognising the PLO. Other

Ministers have said the group must renounce terror and drop clauses from

its covenant calling for Israel's destruction.

The agreement could be signed as early as next Monday in Washington.

But Deri's resignation, and the looming prospect that his

ultra-orthodox Shas party might pull out of Rabin's coalition, could

weaken the Government at a critical moment.

''Minister Deri, whom I asked to meet me today, came and submitted his

letter of resignation,'' Rabin said. '' . . . There is no doubt this

could harm the chance for peace.

''We have reached a situation here where we have a historic

opportunity,'' he added. ''Most Arab states are ready for peace. We

created a new reality -- the Syrians are ready, the Jordanians are ready

and if the Syrians are ready, the Lebanese are also ready.''

But the resignation of Deri, who is suspected of corruption, could

cost Rabin the support of the ultra-Orthodox Shas party's six members of

the Knesset (Parliament). Deri is Shas's only Cabinet Minister.

Rabin praised Deri as ''an exemplary public servant'' and said he

hoped Shas would not leave the Government. But several Shas Knesset

members have hinted that their party could pull out of the coalition.

Rabin's coalition has 62 seats in the 120-member Parliament. Without

Shas he could still muster a majority of 61 with the support of five

members of Arab parties who support the Government from outside.

But he would like to ensure the broadest consensus possible for a

peace deal.

A final decision by Shas on whether to leave the Government rests with

party sage Rabbi Ovadia Yosef who has previously backed peace moves.

Israel's High Court ordered Rabin earlier to sack Deri and Deputy

Religious Affairs Minister Rafael Pinhasi, also of Shas, in response to

a petition by a group for Government reform. Pinhasi is also suspected

of corruption.

Deri, speaking to reporters after the court decision but before he

tendered his resignation, said Shas's position on the peace agreement

might be re-evaluated if it left the Government.

''If Shas will not be in the Government or will leave the coalition,

we will address the political agreement accordingly. Can we take

responsibilty for something we are not a partner to?'' he said.

Washington has invited Israel and the Palestinians to sign the

landmark self-rule accord on September 13.

In Tunis, the PLO executive committee met tonight to decide whether to

approve the self-rule deal.

The first meeting of the committee adjourned without deciding whether

to approve statements from Israel on the separate but linked agreement

on mutual recognition with the Jewish state. A Palestinian source said

an envoy from Norway, which has been mediating on the issue, was heading

for Tunis for further negotiations.

Rabin said he would bring a decision on PLO recognition to a vote in

his Cabinet.

However he said signing the agreements would be only the beginning of

a process because there was still no detailed plan on how Palestinian

self-rule, beginning in the occupied Gaza Strip and West Bank town of

Jericho, would be implemented.

As Rabin was giving his views in Jerusalem, the executive committee of

the PLO was gathering, with 13 of its 18 members attending the meeting

chaired by Yasser Arafat.

This provided the quorum needed for the panel to take binding

decisions, Arafat's office said. Absent member Bishop Elias Khoury has

mandated Arafat to represent him, three members of the executive

committee are boycotting the meeting, and a fourth resigned last week in

protest at the deal.

Throughout the day Israelis and Palestinians intensified

demonstrations for or against the proposed deal with the PLO on

self-government in the occupied territories.

Israeli demonstrators near Rabin's office in Jerusalem threw stones at

police and set up burning tyre roadblocks in protest at the pact.

''Rabin's a traitor,'' a crowd of Jewish settlers chanted repeatedly

outside Rabin's office. A placard carried by a Jewish demonstrator in a

religious skullcap said: ''Peace with Arafat is war with God.''

Police used water cannon and clubs to scatter thousands of Jews and

settlers from the occupied territories who blocked the street. Up to

60,000 people joined the demonstration, which began last night with

rightwingers assailing Arafat as a ''terrorist''.

Former Israeli Prime Minister Yitzhak Shamir warned in an interview

published today that a Jew-against-Jew civil war could erupt in Israel

if the current plan for Palestinian autonomy goes through.

In the occupied Gaza Strip, the Islamic movement Hamas called on

Palestinians to observe a general strike and raise black banners in

mourning on the day of any signing.