It is the first time Israel has agreed to allow an armed foreign presence to enter the occupied territories, apart from United Nations troops on the borders, since it seized the lands in the 1967 war. The force, consisting of Norweg ians, Danes and Italians, will be called Tiph (Temporary International Presence in Hebron), and deputed to restore 'normal life' to Hebron.
As news of the agreement was announced in Cairo, thousands of Jewish settlers, and Israeli right-wingers, staged a mass rally in Kiryat Arba, the main Hebron settlement, while the Arab town was placed under curfew.
Many at the rally paid homage at the grave of Baruch Goldstein, the Hebron mass-killer, while some wrapped themselves in Goldstein's prayer-shawl, providing a timely demonstration of the provocative fanaticism which the small observer force will be expected to try to defuse.
The latest Cairo agreement, was presented as a strong signal that both sides are now determined to put the Hebron massacre behind them, and give new momentum to the fragile Gaza-Jericho deal.
However, the spectre of Hebron still haunts the negotiations, and the conflict in this most volatile of West Bank towns is certain to continue to threaten the entire peace deal.
Knowing this, Israeli and Palestinian negotiators were obliged to try to produce a cure for Hebron's malaise before proceeding with the broader peace agreement. The Palestinians had at first demanded a Palestinian police force in Hebron, but backed down after Israel insisted such a force come under its authority.
Yitzhak Rabin, the Israeli Prime Minsiter, agreed to the new international observer presence in the face of swingeing criticism from the Israeli right, who immediately accused him of ceding Israeli sovereignty in the occupied territories. Benjamin Netanyahu, leader of the opposition Likud party, described the agreement as a 'crime against Zionism'.
The force is to consist of about 160 Norwegians, Danes and Italians, who will be lightly armed for self-defence but will have 'no military or police functions', according to the agreement. The force will report on specific events to a committee made up of two Israelis and two Palestinians, headed jointly by the Palestinian mayor and the head of the Israeli military government for Hebron district.
However, it remains unclear where the force will be allowed to patrol, or what powers it will have if clashes occur between Israeli forces and Palestinians, or between settlers and Palestinians. Judging by yesterday's settler rally, it will be a brave 'observer' who dares to intervene in Hebron.
A large number of settlers and Jews from Israel proper - about 10,000 - travelled through extremely hostile Arab terrain to be at the rally yesterday. This was in itself proof that the right now truly fears that Mr Rabin is ready to move against them, and start to hand over some degree of autonomy to the Palestinians.
In Hebron, where settlers fear they may be uprooted, emotions are being whipped up to new intensity with the help of violent and often racist anti-Arab propaganda. On a noticeboard yesterday a picture showed helpless Hebron Jews being eaten by a giant snake.
'Hebron is where Judaism begun and where Rabin will fall,' said the giant banner behind the speakers' platform in Kiryat Arba. 'Rabin out', posters exhorted, and loudspeakers blasted songs 'in praise of Baruch Goldstein . . . Goldstein the brave'.
Many here supported the call this week by a committee of rabbis for the Israeli army to refuse any order to evacuate settlements. 'Rabin is a poodle of Arafat, he is creating a new Judenrein,' said Dov Fried man, aged 69, yesterday as he paraded Holocaust images around the rally. 'What is happening brings back memories of 1930 in Germany.'