Israel seeks ways to counter Hamas: The Labour Party is tailoring its peace moves to combat the PLO's main rivals, writes Sarah Helm from Jerusalem

ISRAEL should allow the Palestinians to appoint their own self- governing authority in the West Bank and Gaza Strip, even if this means members will be chosen by the Palestine Liberation Organisation (PLO), a key figure in Israel's peace strategy has suggested.

Such a proposal would be further acceptance of the reality that the PLO leadership in Tunis rather than local leaders would control the destiny of the people in the occupied territories.

Israel's original proposal was that elections be held among Palestinians in the occuped territories for the self-governing authority. But this proposal proved unpalatable to the Palestinians, according to Yossi Beilin, the deputy foreign minister and a leading dove. The PLO, he said, was worried about the risks of losing out to the rising Islamic current. It fears, above all, the growing support for the Islamic Resistance Movement, Hamas.

Palestinian unwillingness to accept elections had become an obstacle to progress in the peace talks even before the furore over the deportation of more than 400 Palestinian Islamic militants in December, Mr Beilin said.

Speaking on the eve of talks in London, Mr Beilin made clear that Israel would not impose the idea of the self-governing authority. However, he appeared to be encouraging the Palestinian peace delegation to suggest it, saying the delegation itself might provide the members. 'It is my feeling that the whole question of elections has been an inhibition rather than a solution to the setting up of the interim autonomy,' he says.

That he should float such an idea now suggests a growing fear in the Foreign Ministry that support for Hamas may have been strengthened - at the PLO's expense - since the deportations.

The last thing Israel wants is proof of this at the ballot box. Although Hamas has not made clear whether it would take part in autonomy elections, the PLO has, for some time, been afraid of electoral defeat at the hands of Islamic militants. A low turnout might be enough to register majority support for Hamas.

While Mr Beilin's suggestion may appear to be anti-democratic, he puts it forward in order to inject new hope into the talks. 'Otherwise we will shuffle our feet in futile fruitless negotiations which will take time that we don't have.'

Mr Beilin's is the voice of the Labour doves, who support the Foreign Minister, Shimon Peres. Tipped as a future Labour leader, he is a man who is at ease talking about Israeli 'withdrawal' from most of the West Bank and all of Gaza. And he is also a realist, saying there can be no such thing as a 'benevolent occupation'.

For the doves of the Labour Party, the nine months since the Labour election victory have been painful as the early hopes for Palestinian autonomy have been drastically scaled down. They have been forced to move in the shadows as Mr Rabin has adopted increasingly hardline policies, culminating in the deportations.

Mr Beilin says a few months are needed yet to know whether the deportations have helped - by shattering Hamas - or have irreparably damaged the chances of peace by aborting the talks. But he fears increased violence since December has heightened mutual suspicion and reduced the government's room for manoeuvre.

Mr Beilin believes the Palestinian problem is the key to Middle East peace. He says: 'If the Palestinians do not return to the talks they will punish themselves - and us, too. We are in the same boat.'

A Palestinian worker was shot dead yesterday after two Palestinians stabbed an Israeli settler to death in Gaza, Palestinian sources said, AFP reports.

Trouble erupted when settlers blocked a road near the Erez checkpoint to protest against the settler's murder as thousands of Palestinians returned from a day's work in Israel.