Israel's Rabin Banks on a Reformed PLO

ISRAELI leaders hope a kinder, stronger Palestine Liberation Organization will help them surmount formidable political and security challenges emanating from this week's historic agreement on self-rule for part of the Israeli-occupied territories.

``According to all the understandings, the organization will announce with the signing of the agreement that it is stopping terrorist actions,'' Foreign Minister Shimon Peres told journalists. ``To all who ask, `Are you ready to recognize the PLO?' my answer is, if the PLO recognizes reality and ceases to be what it was in the past, then we have no problems.''

The statement indicated Israel's desire to see the PLO break unequivocally with provisions in its charter, the 1964 Palestine National Covenant, which calls for the replacement of Israel with Palestine.

According to one senior PLO official, the organization and Israel will recognize each other within days of the signing of a peace agreement on self-rule for Palestinians in the Israeli-occupied Gaza Strip and the West Bank town of Jericho.

PLO Chairman Yasser Arafat would even be welcome to move to the Gaza Strip from Tunis ``so that Israel can conduct just one negotiation and not two separate negotiations,'' according to an Israeli official quoted in papers here yesterday. Fervent opposition

The burgeoning reconciliation is fueling already fervent opposition charges that the government of Prime Minister Yitzhak Rabin is leading Israel toward destruction.

``The promises of the PLO have no worth,'' Likud opposition leader Benjamin Netanyahu said. ``We have a historic breakthrough here, a breakthrough for the PLO and the bankruptcy of our state.''

Leaders of the ruling Labor Party are competing with the Likud Party for the votes of small ultra-orthodox parties in a Knesset (parliament) ballot that is virtually certain to back the plan, but could embarrass Labor if its majority is narrow. The vote is expected next week.

Unlike the broad support Likud's Menachem Begin enjoyed for the 1979 peace treaty with Egypt, Labor faces an opposition bloc of some 50 of the 120 members of the Knesset. They are determined to convince the public that only new elections can validate such a decision.

For decades viewed as Israel's public enemy No. 1, the PLO is now seen by officials as the key to maintaining order in the Gaza Strip and the West Bank town of Jericho, the two areas designated for pullbacks by the Army and immediate self-rule as a prelude to wider arrangements covering the rest of the West Bank.

Labor's hope is that a newly constituted PLO-dominated police force will be able to crack down on the militant Hamas group and hard-liners anxious to thwart the arrangements, which provide at first for rapid implementation of self-rule in Gaza and Jericho and then an extension of the process to the rest of the West Bank.

Should the PLO prove an unreliable partner, the self-rule arrangements could be halted, with no further Israeli concessions, officials warn. ``If the Palestinians don't succeed in controlling their own people, no one can oblige us to go the second stage,'' Deputy Defense Minister Mordechai Gur said Tuesday on Army radio. ``No one will prevent us from activating our forces if this is needed.''

Plans call for a redeployment of forces away from Palestinian population centers, while allowing the Army to continue to protect Jewish settlers and Israeli civilians in the autonomous area. To boost the PLO's strength, Israel is ready to allow members of the Palestine Liberation Army, a force based in several Arab states, to join the police force in Jericho and Gaza.

``I am certain our ally during and after the agreement is the PLO,'' says Ran Cohen, a legislator from the liberal Meretz party in Peres's coalition. ``If the PLO rules in the territories today and prevents terrorist activity, it will be doubly advantageous for Israel.''

But leaders of the 5,200 Jewish settlers in the Gaza Strip are outraged by the plan. Right-wing demonstrators heckled Prime Minister Rabin when he visited a school in a neighborhood north of Jerusalem.

Senior Army officers are concerned the agreement will limit freedom of action and curtail raids against armed Palestinians. They are confident that troops will be able to safeguard Jewish settlements and the border with Jordan, but say they will have trouble protecting individual Israelis driving through the autonomous areas.

``The PLO is not an existential threat to the state of Israel, and it is an insult to the Army to say that it is,'' Rabin said on Israel radio yesterday.

But there is an apparent threat from Hamas, a militant Islamist group, and other hard-line factions, officials warn.

``Terrorist activity is liable to disrupt and pose difficulties to the extent of deterring people who support the agreement,'' deputy chief of staff Amnon Shahak told Knesset legislators Tuesday. ``It is clear that the Army, which is responsible for order in the territories, will act against those who violate the law whether they are from among the residents of the territories or the Jewish settlers.'' Rabbi and novelist spar

Rabbi Yoel Bin-Nun, a leader in the northern West Bank settlement of Ofra, says it would not be long before Palestinian self-rule would spread to the biblical heartland of Eretz Israel (Greater Isreal) in the West Bank. Squaring off against dovish novelist Amos Oz on national television, Rabbi Bin-Nun gave voice to the bitterness of settlers toward territorial compromise.

``Zionism was always a confederation of dreams, and we are reaching the stage where the dreams are colliding. You are building your dreams on an attempt to destroy our dreams,'' he said.

Mr. Oz countered that the settlers had caused the rift by ``trying to turn the state of Israel into an instrument of oppression'' against Palestinians.

``I do not know what the final model will be for our grandchildren to live by. But I know that this week for the first time in a hundred years of blindness, the two peoples have looked one another in the eye and said yes, you are also a nation,'' Oz said.