Arab Protesters Fired On in E. Jerusalem : Israel: One Palestinian is killed. The Cabinet will meet today on the thorny issue of peace talks.

Israeli police fired on Palestinian demonstrators in Arab-populated East Jerusalem on Saturday, killing at least one and triggering a brief wave of protests on the eve of an Israeli Cabinet meeting scheduled today on the contentious issue of peace talks.

According to reports from Palestinian spokesmen and international relief workers, two men were shot to death and two others wounded at Shuafat, the only refugee camp within the city’s boundaries. Israel Radio said that only one of the Palestinian protesters was killed.

The demonstration--marking the start of the 28th month of the intifada , the Palestinian uprising against Israeli rule in the occupied West Bank and Gaza Strip--began Friday night, and the initial clash with police took place sometime after midnight. Police spokesmen said the protesters had barricaded entrances to the camp and stoned police outside the perimeter and passing cars on a nearby road. They said the shootings were under investigation.

By morning, demonstrations had spread to the nearby Arab village of Anata. In the business district of East Jerusalem, shopkeepers shuttered their stores Saturday morning to protest the shootings, an unusual occurrence within the city itself. The vast majority of Palestinian casualties in the intifada have taken place in the West Bank and Gaza Strip.

Relief workers identified the dead men as Mahmoud abu Khalifa, 21, and Sufian Khalil, 25. Israel Radio gave no identification for the one man that police said had been killed.

Later Saturday, several hundred Israeli and Palestinian women of the newly formed Network for Peace held a rally in East Jerusalem and called for direct negotiations between the Israeli government and the Palestine Liberation Organization. Police, backed by troops, surrounded the meeting site, and there were no incidents.

East Jerusalem is expected to figure prominently in today’s scheduled meeting of the so-called Inner Cabinet of top ministers from the Likud and Labor parties. The deliberations, resuming after a 2 1/2-hour session Wednesday, will focus on a response to an American formula for getting the first-ever Israeli-Palestinian peace talks under way.

It takes place under a continued threat by Labor to withdraw from the ruling coalition if the formula is not accepted. The Likud leaders, led by Prime Minister Yitzhak Shamir, are pressing Labor for agreement on two key points before accepting the compromise proposal by U.S. Secretary of State James A. Baker III to get the stalemated peace process moving again:

* A decision to bar East Jerusalem residents from voting in a proposed election of Palestinian representatives to full-scale peace talks. Allowing the 140,000 East Jerusalem Palestinians to vote, Likud spokesmen have argued, would raise questions about the legitimacy of the Israeli annexation of the eastern sector of the city after the 1967 Arab-Israeli War.

* Prohibition of any role, direct or indirect, by the PLO in preliminary talks that would arrange the elections.

The Baker compromise, designed to begin the preliminary talks in Cairo, would permit the initial Palestinian panel to include representatives who have been deported from the occupied territories and who have apartments or offices in East Jerusalem. Hard-line Likud ministers oppose even that representation from East Jerusalem.

Shuafat camp, the site of Saturday’s demonstration, stands near the Jewish development of Pisgat Zeev, where the Israeli housing minister announced last week that 4,000 apartments will be built.