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Benjamin Netanyahu moved into the prime minister's office Wednesday, completing a shift of power that has alarmed Arabs who fear for the future of the fragile peace process.

In his inaugural address, Netanyahu called on Syria, Lebanon and Saudi Arabia to negotiate peace "without preconditions" - a reference to Syria's insistence that Israel agree to a total return of the Golan Heights before details of a peace treaty are worked out.Netanyahu said he would negotiate with Yasser Arafat's Palestinian Authority but warned that Israel's army would have "full freedom of action to act against terrorism." Chasing suspected terrorists into autonomous Palestinian cities would violate the Israel-PLO accords.

Arab nations are holding a summit in Cairo this weekend to discuss the situation.

Egypt's Foreign Minister Amr Moussa criticized Netanyahu, saying his speech Tuesday raised more questions than it answered.

"If this speech made anything clear, it made clear the hard-line Israeli position which is something which can only have negative effects on the peace process," Moussa said.

In Syria, government newspapers denounced Netanyahu's policies as counterproductive to peace.

The English daily Syria Times said Netanyahu's guidelines could be described as "sabotaging the peace process" while the daily Tishrin said the new prime minister's policies "threaten to totally undermine the effort and reverse what has already been agreed on."

Arafat, speaking in China, said the peace accords were an international agreement rather than a bilateral one between the Palestinians and Israel.

"Now it is the turn of the international community. I am not alone now," Arafat said. "We hope everyone will be committed to what has been agreed upon."

Khalil Shakaki, head of a West Bank think tank, predicted Netanyahu will eventually support a Palestinian state confined only to the Gaza Strip - where almost half the Palestinians now under autonomy live. He predicted a complex "arrangement" in the larger West Bank, possibly including a role for neighboring Jordan.

Netanyahu's first test of intentions will come soon: He must decide whether to honor the outgoing government's commitment to withdraw troops from Hebron, the last West Bank city under Israeli occupation.

Netanyahu, speaking at a ceremony Wednesday with the defeated architect of the peace process, credited his predecessor Shimon Peres for a half-century of service to Israel and promised cooperation with the former pre-mier.

Handing over the office he held for six months after the slaying of Prime Minister Yitzhak Rabin, Peres replied that the path to peace would not be easy.

Tuesday's inauguration was marred by Netanyahu's tussling with his party's right-wing over a Cabinet position for fiery ex-general Ariel Sharon, who expected to be repaid for tireless campaigning with the coveted defense or finance portfolios.

The new Cabinet includes newcomers like Iraqi-born Yitzhak Mordechai as defense minister and former Soviet dissident Natan Sharanksy as trade and commerce minister.