Truce hangs in the balance after car bomb explodes in Jerusalem

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A car bomb in the heart of west Jerusalem killed two Israelis yesterday, disrupting a ceasefire that was meant to end a five-week cycle of violence which has cost 168 lives and destabilised the entire Middle East.

A car bomb in the heart of west Jerusalem killed two Israelis yesterday, disrupting a ceasefire that was meant to end a five-week cycle of violence which has cost 168 lives and destabilised the entire Middle East.

It went off near a crowded Israeli marketplace as fighting erupted anew in the West Bank and Gaza Strip, where two Palestinians were shot dead by the Israeli army and at least 80 people were injured.

The bomb, which caused deep outrage in Israel, seriously jeopardised a truce which had earlier been cobbled together by the former Israeli prime minister, Shimon Peres, and Yasser Arafat. Afterwards, efforts were being made to keep the ceasefire alive, but they seemed unlikely to succeed for long.

The bomb- only a few hundred yards from the popular Mahane Yehuda market, scene of several past bombings - was claimed by the Islamic Jihad, a radical Muslim group which is committed to guerrilla war aimed at destroying Israel altogether and to taking the conflict inside Israel's 1967 borders in defiance of the mainstream Palestinian leadership. In a fax to the Associated Press in Syria, the group - describing itself as the military wing of Islamic Jihad - vowed to carry out more attacks.

The bomb exploded at around 3pm - one hour after Mr Arafat and the Israeli prime minister, Ehud Barak, had initially planned to issue a joint statement declaring a truce. First the statement was late and then it was delayed after the blast which rocked the entire city.

Police said it was caused by a large number of explosives packed inside a car; a traffic warden had ticketed the car 15 minutes before it detonated.

Two passers-by, a man and a woman, were killed and 11 people were injured, deepening the sense in Israel of being a nation under siege. Israeli news reports said that the dead woman was the 27-year-old daughter of a former minister in Mr Barak's government, Rabbi Yitzhak Levy, head of the right-wing National Religious Party. The party has a strong following among Jewish settlers in the occupied territories, which have been engaged with bloody fire fights with Palestinians in the past month.

Israel - which has been expecting a bombing attack for weeks - immediately laid the blame on Mr Arafat, not for organising the bomb but for failing to re-arrest scores of Hamas and Islamic Jihad activists whom he released from Palestinian prisoners after the start of the new intifada.

However, Mr Arafat has been struggling for days to bring under his control the many Islamic militants taking part in the uprising and knows that acting against them will jeopardise his power base.

President Clinton condemned the attacks, saying that "those who seek to destroy the peace with acts of terror cannot be allowed to prevail".

Last night Mr Arafat said the Palestinian Authority condemned the bombing. "We are against it completely," he told reporters in English when asked for his reaction.

As Mr Barak convened a meeting of his security cabinet, the leadership of both sides appeared to be pushing on with an effort to end the bloodshed. Israel said it was still standing by the truce, although it was awaiting an explicit appeal from the Palestinian leader calling on his people to stop fighting.

Some significance was being attached to a guarded statement issued by Mr Arafat's office calling on Palestinians to "stick to peaceful means" in protests. However, it is far from clear whether his people will obey. The Palestinians have for years been frustrated with Mr Arafat's handling of fruitless peace negotiations and the corruption and ineptitude of his aides. After seeing their towns blockaded, their homes shelled by tanks and helicopters and their children shot by the Israeli army, many will want to fight on. And Israeli public opinion is also badly enflamed - by the deaths of eight soldiers and this latest attack on the heart of the city which they regard as their sacred eternal capital.

There had been a forewarning - a small pipe bomb in west Jerusalem on Wednesday night, which injured one. Last night, Israelis were bracing for more.

Mistrust and ill will prevail. Throughout the day both sides were arguing over the content of statements that Mr Peres and Mr Arafat had agreed would be issued, recommitting themselves to the two-week-old Sharm el-Sheikh ceasefire deal - which was never enacted - and calling for an end to violence. A Palestinian spokesman said that they had made one, as agreed - referring to a vaguely worded unilateral statement, issued before the bomb. The Israeli side said it did not suffice, and criticised the wording.

Nahman Shai, a government spokesman, told The Independent: "Whenever Arafat has to make a decision, he runs away."

Although Israel's patience was running out, it had not totally given up on Mr Arafat, despite the continued violence in the field yesterday. In anticipation of a truce, Israeli tanks did begin to roll back from some flashpoints and some Palestinian police tried to restrain stone-throwers.