Israel Lashes Back at U.S. Over Handling of Unrest : Diplomacy: Officials try to turn the tables, accuse Washington of encouraging Arab violence.

TIMES STAFF WRITER

The government lashed back sharply Wednesday at the Bush Administration's criticism of Israel's suppression of Palestinian unrest.

Officials in the caretaker government of Prime Minister Yitzhak Shamir disputed complaints from Washington that failure to move forward on peace talks encouraged the violence that erupted after the weekend slaying of unarmed Arab day laborers.

Israeli officials have been busily fending off such charges from domestic critics since the killing of the seven laborers at Rishon le Zion on Sunday. The official view is that the shooting was an isolated incident involving a "deranged" young man and that the reaction should not be allowed to spill into the diplomatic arena.

In a written statement, however, the Foreign Ministry sought to turn the tables on Washington by accusing the Administration itself of encouraging turmoil.

"Linking the violence to the peace process is liable to be seen by certain groups as a reason to continue the violence in the hope of attaining their ends," it said.

"There is no connection between the act of one crazed individual and the peace process. The major obstacle to the advancement of the peace process in the Middle East is the refusal of Arab states to accept Israel, recognize its right to exist and enter into direct negotiations with Israel," the document added.

Foreign Minister Moshe Arens rejected calls from President Bush for the Israeli army to act with restraint in putting down Palestinian unrest. The troops are already restrained, Arens argued.

"I think that the Israel Defense Forces have acted in an exemplary manner in dealing with the rampage that we were faced with by thousands of people in Gaza and (to) some extent also in Judea and Samaria," he said, using the biblical names for the Israeli-occupied West Bank.

Bush had expressed sympathy not only for the families of the seven Rishon le Zion victims but also for families of 13 Palestinians killed by Israeli soldiers since the violence broke out Sunday. Government radio in Israel termed Bush's statements "unprecedented."

The Rishon le Zion incident and its aftermath have appeared to deepen Israel's diplomatic isolation. Representatives of the 12 nations of the European Community urged restraint in dealing with Palestinians and blamed the recent violence on lack of progress in Middle East peace. Egypt, the only Arab country to have made peace with Israel, also expressed dismay.

But it is Washington, which supplies generous financial aid, that most concerns Israel. Shamir is trying to form a coalition government that will permit him to emerge from a two-month political crisis with his hold on power intact.

He had recently made symbolic gestures to ease growing tension with the United States. For instance, his government announced that Palestinian universities would soon be reopened after a prolonged closure during the Arab uprising.

These moves were overshadowed, however, by disputes centered on Baker's plan to get Israeli-Palestinian peace talks off the ground, continual Israeli settlement in the occupied lands and now by the upsurge of violence.

Since the shooting Sunday, Israel has increased its troop strength dramatically in the occupied lands. The Gaza Strip and the West Bank were relatively quiet Wednesday as curfews remained in force.

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