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ISRAELIS AND ARABS OPEN TALKS

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Israelis and Arabs opened historic talks Wednesday aimed at overcoming four decades of hostility and war in the Middle East. President Bush implored them to strike a deal centered on territorial compromise and permanent treaties.

"Peace in the Middle East need not be a dream," Bush said at the dramatic opening of the first peace talks in a generation.Soviet President Mikhail S. Gorbachev forcefully seconded the call for compromise. "It would be unforgivable to miss this opportunity," he said.

In a chilling reminder of the Middle East's bloody politics, an Iranian lawmaker influential with Lebanese terrorist groups said Wednesday that all peace conference participants should be killed.

But such hard-line opposition to the conference was the exception, not the rule, in much of the Arab world. "The battle for peace begins," said a banner headline Wednesday in Jordan's biggest newspaper, Al-Rai.

In Madrid, Egyptian Foreign Minister Amr Moussa, the first Arab delegate to speak, said the conference heralded "a new era in the Middle East." Egypt is the only Arab country to have ever made peace with Israel.

In his speech, Moussa demanded recognition of the rights of Palestinians, denounced Jewish settlements in occupied lands and insisted Israel should not "exercise a monopoly" over Jerusalem.

The status of Jerusalem, which is holy to Jews and Muslims alike, is one of the bitterest issues confronting the conferees. Israel annexed the eastern portion of the city after capturing it in the 1967 Middle East war and has vowed it will remain united forever as the capital of the Jewish state. The Palestinians also claim the city as their capital.

As the talks opened, the splendor of Spain's Royal Palace and its rich tapestries could not mask the underlying tensions. One Israeli delegate said she tried to shake the hand of a Lebanese negotiator but was snubbed. Other than that, handshakes were simply avoided.

By their presence, Bush and Gorbachev lent their influence and prestige to the talks, the first since a 1973 parley in Geneva collapsed in a day. Ahead lay months or years of delicate talks designed to move ancient foes away from the brink of war.

"Peace will only come as a result of direct negotiations. Compromise. Give and take," said Bush.

He laid out a timetable for an Israeli-Palestinian settlement, urging a completion of terms for limited self-rule on the West Bank and in Gaza in a year's time.

Trying to coax the two sides to take chances, Bush assured them that subsequent negotiation on a permanent settlement would be "determined on their own merits." The apparent U.S. message was that an interim arrangement could be experimental - and not binding on the final situation.

Hanan Ashrawi, the Palestinian spokeswoman, welcomed "the conciliatory nature" of Bush's speech opening the conference. It reflected a U.S. policy of "take it one step at a time," she said after delegates broke for lunch.However, Ashrawi and fellow Palestinian leader Faisal Husseini expressed disappointment that Bush did not come out firmly for Israeli withdrawal from the occupied lands and recognition of Palestinian national rights.

Yossi Ben Aharon, a top aide to Israeli Prime Minister Yitzhak Shamir, expressed satisfaction that Bush called for "territorial compromise," rather than a land-for-peace formula.

The distinction being drawn by the Israelis was not immediately clear. "Territorial compromise" could mean the land must be shared, whereas "land for peace" is read by many Israelis as suggesting they should give up all the occupied lands.

From the Middle East itself came a reminder of the difficulties confronting the diplomats.

In the Israeli-occupied territories, more than 50 people were injured when rival Palestinian factions battled with knives and chains, and Arab reporters said one Palestinian was killed and at least 13 people wounded when Israeli troops opened fire to break up stone-throwing protests by followers of the Muslim fundamentalist Hamas movement.

From Israel's self-designated security zone in southern Lebanon, Israeli gunners shelled Shiite Muslim towns to avenge guerrilla attacks a day earlier.

In Madrid, the Israelis, some in the skullcaps worn by observant Jews, quickly fell into lively conversation with delegates from Egypt. But for the most part, the Arabs, some clad in flowing robes and keffiyehs, traditional Arab scarves, gathered on one side of the room, the Israelis on the other.

Bush addressed the most delicate question directly, saying, "We believe territorial compromise is essential." So far, Israel has staunchly rebuffed appeals to trade land for peace.

The goal, Bush told delegates, is "not simply to end the state of war in the Middle East and replace it with a state of non-belligerence."

The call for real peace was a message to Arab leaders - especially Syria - who have not acknowledged Israel's right to exist.

The timetable for an Israeli-Palestinian settlement looks like this: set terms for limited self-rule on the West Bank and in Gaza in a year's time; in the third year, the two sides would begin negotiations for a permanent arrangement that would take effect at the end of five years.

Bush reiterated the U.S. offer to provide guarantees, as well as technical and financial help, to ease the parties toward a peace settlement.

Merely convening the conference was a diplomatic triumph of the first order for Bush and Secretary of State James A. Baker III, and Gorbachev's presence was a reflection of the dramatic change in East-West relations in the past few years.

The diplomatic maneuvering continued almost until the moment the opening gavel fell, as Bush held a final flurry of talks with leaders of each delegation. He met just after daybreak with Shamir.

Baker made a point of denying a report that Shamir had refused to shake his hand during a meeting Tuesday night, saying that they shook hands at least three times.

From the Arab side came an unexpected positive development: the participation of Prince Bandar, the Saudi Arabian ambassador to Washington, as an observer in Madrid.

The Saudis had declined to negotiate war-and-peace issues with Israel, limiting their involvement to a final stage when such regional problems as water shortages and arms buildups are discussed.

Even as the conference opened, there was no agreement on where the face-to-face bargaining between Israel and the Arabs will be held after a few days of ceremony and diplomatic throat-clearing in Madrid.

Baker's separate meetings Tuesday night with Shamir and Syrian Foreign Minister Farouk al-Sharaa failed to produce an agreement on where the negotiations will be held, a U.S. official said as the conference opened.

Extremists on both sides have condemned the peace conference, and the latest denunciation came from Ali Akbar Mohtashemi, a leading Iranian Parliament member. He told Iranian lawmakers that peace conference participants are classified as moharebs - those who wage war against God - and "in accordance with Islam, the blood of a mohareb must be shed."

Pope John Paul II, meanwhile, sent messages to Bush and Gorbachev, praising U.S. and Soviet efforts in the Middle East. In the letters released by the Vatican Wednesday, the pontiff said he was "convinced that agreement is possible" if the rights of all were respected.

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(Additional information)

Israelis kill Iranian\ Israeli troops killed an Iranian man who crossed the Jordanian border and captured three others with him who were suspected of planning an attack inside Israel, Israeli sources said Wednesday.

The four crossed the border Tuesday night 5 miles north of Eilat, the Red Sea beach resort, the sources said. The incident occurred just hours before the opening of Middle East peace talks in Madrid.

Israel's military has been ordered on a state of high alert throughout the conference. There was an attack Monday night on a bus in the occupied West Bank in which a settler and the bus driver were killed.