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The PLO and Israel, in a historic breakthrough after decades of warfare, agreed Thursday to officially recognize each other.

Israel made the first formal announcement. Housing Minister Ben-jamin Ben-Eliezer told reporters Israel's inner Cabinet voted unanimously to approve a mutual recognition agreement with the PLO.The inner Cabinet is made up of 10 key ministers, and its approval of the agreement clears the way for Israeli Prime Minister Yitzhak Rabin to sign it.

Earlier, Yasser Abed-Rabbo, one of the officials closest to PLO Chairman Yasser Arafat, said Arafat would announce the agreement Thursday night.

Under the agreement, the Palestine Liberation Organization would renounce terrorism and recognize Israel's right to exist. Mutual recognition would clear the way for the signing of a peace plan that would give autonomy to Palestinians in the occupied Gaza Strip and West Bank town of Jericho. That could eventually lead to a more comprehensive autonomy for Palestinians in lands captured by Israel in the 1967 Arab-Israeli war.

Meanwhile, about 100 Palestinians deported to Lebanon last winter returned to Israel Thursday in a move that could help overcome obstacles to the peace accord.

The Palestinians from the occupied West Bank and Gaza Strip crossed the border from Lebanon in Israeli buses whose windows had been whitewashed so nobody could see inside. The convoy passed through the Egel gate in the Israeli town of Metullah. All were bound for Israeli jails for questioning and medical examinations.

The agreement follows months of behind-the-scenes negotiations between Palestine Liberation Organ-ization and Israeli officials, with Norway acting as go-between.

Abed-Rabbo, who was involved in the negotiating process, said problems with the wording of the agreement were worked out Thursday in telephone calls by both sides to Norwegian diplomats in Paris.

Abed-Rabbo said Norwegian Foreign Minister Johan Jorgen Holst, who brokered the autonomy plan in secret meetings in Oslo, was flying from Paris to Tunis with a copy of the recognition agreement.

After the PLO signs the agreement, Holst will take it to Jerusalem for Rabin's signature, Abed-Rabbo said. In Paris, Israeli Embassy spokeswoman Sabine Sitruk said Holst would fly to Israel Thursday night.

President Clinton, traveling Thursday in Ohio, said that if the PLO has renounced terrorism and met other U.S. conditions, "then we will resume our dialogue with them and go on from there."

He did not say if that meant the United States would give formal recognition to the PLO. He also did not say if the parties would be ready to sign the plan in a ceremony at the White House on Monday, as he had offered.

But in another indication that a signing might occur Monday, Israel's delegation to the peace talks in Washington has decided to stay over the weekend rather than return home Thursday as planned.

An Israeli Foreign Ministry official said the accord was worked out between two Israeli and two PLO officials at the Bristol Hotel in Paris.

The Israeli side consisted of Foreign Ministry Director-General Uri Savir and legal adviser Yoel Zinger. Ahmed Qureij'a, or Abu Alaa, headed the Palestinian team.

Arafat and two other top PLO officials participated in the telephone negotiations from Tunis.

The PLO's ruling Executive Committee discussed the plan for 41/2 hours earlier Thursday, and Arafat appeared to have the necessary majority approval from nine of the 13 committee members present.

The sticking point had been the clause about the Palestinian uprising in the occupied lands, which have been wracked with violence since 1987.

A senior PLO official said a compromise, apparently acceptable to Israel, would have Arafat announce that "the PLO will encourage the Palestinians in the occupied territories to work for reconstruction and will urge them to avoid violence."

The PLO had balked at wording proposed by Israel that would have read as a call to end the uprising against more than a quarter century of Israeli domination.

Some PLO members and other Palestinians have criticized the plan for ignoring key issues such as Israeli settlements in the occupied territories, the status of Jerusalem and the future of refugees.

According to one member of the PLO committee that supervises the Mideast peace talks in Washington, the draft declaration of mutual recognition calls for Arafat to:

- announce recognition of Israel and its right to exist;

- denounce terrorism;

- promise to call a meeting of the 468-member Palestine National Council, or parliament-in-exile, to formally endorse his statements.

The agreement for self-rule could then be signed later this month, probably before Sept. 20, the official said.

Rabin, saying he had "butterflies in my stomach," said Thursday he was ready to recognize the PLO as soon as Arafat renounced violence and terrorism in writing.

Clinton said Thursday he called Rabin to offer his congratulations on the agreement between Israel and the PLO on a formula for mutual recognition.

Foreign Minister Shimon Peres was heckled in Israel's Parliament by right-wing opponents of the plan. But he said "we didn't change, (Arafat) changed. Arafat announces that he abandons terror, that he recognizes Israel and is willing to live in peace with it."

Peres said he hoped "twins will be born to us" next week - an agreement with the Palestinians and another with Jordan. Israeli officials have said the accord with Jordan was ready for signing.

Speaking to the 44-member Labor Party faction in parliament, Rabin described the agreement with the PLO as the "smallest risk to give peace a chance."

The return of the deportees removes a focus of Islamic protests against Israel and PLO moderates, and could help to soften Palestinian opposition to the autonomy deal.

Israel expelled around 400 men in December in retaliation for the killings of six Israeli troopers, which it blamed on Palestinian fundamentalists. Most of the deportees belong to the Islamic fundamentalist Hamas movement and others belong to the Islamic Jihad in Palestine group.

They were the largest group of Palestinians ever expelled by Israel at one time, and their deportation stalled U.S.-sponsored Mideast peace talks for months.

Israel did not allow all 396 banished men to return at once to avoid the chance that celebrations could turn into huge rallies against the peace plan.