Israel Starts Easing Curfews on Arabs : Occupied areas: Palestinians will gradually be allowed to leave their homes. The move is designed to revive a stalled economy.

Israel took steps to put schools, ministries and other government institutions on regular schedules Wednesday and began to let Palestinians out of 18-day, army-imposed curfews despite concern that unrest will follow.

The measures are designed to jump-start a return to normalcy and revive a stalled economy that ground down beginning Jan. 18, when Iraq began bombarding Israeli cities with missiles.

The decision to gradually let Palestinians leave their homes, where they have been largely confined since Jan. 18, is meant to test the mood among Arabs who have supported Iraq in its battle with U.S.-led armies over Kuwait. The lifting of curfews in the West Bank and Gaza Strip is considered a first step toward letting Palestinians return to work in Israel, where they hold many construction and agricultural jobs.

There has been intense debate within the government of Prime Minister Yitzhak Shamir over whether Palestinians should be permitted to resume work in Israel. On the one hand, their absence has virtually put a halt to the building trade and to the harvest of winter fruits and vegetables. Economic ministries have been pushing for a return of Palestinian labor.

But intelligence officials warn of turbulence and an eruption of knife attacks on Israeli civilians by the Palestinians, government radio said. Defense Minister Moshe Arens has wanted to move slowly in lifting curfews and has yet to say when Palestinians can return to their jobs in Israel.

On Wednesday, he warned: “If as a result of any relaxation (of the curfews), we witness attacks, that means an end of relaxations.”

Arens said the threat of rocket attacks from Iraq has not fully receded but that Israel could not reduce its public activities indefinitely. School attendance and work at ministries were curtailed because of the fear of gathering groups in public places. Many working mothers stayed home to take care of their children while schools were shut.

Starting with high schools, classes have been gradually restored during the past three days. All grades will be put in session by next Tuesday, officials said.

“It’s not a calculated risk, it’s something we have to do,” said Arens. “We have to go back to normal life and full production in the economy of Israel.”

Most places of entertainment have remained closed at night and tens of thousands of residents of Tel Aviv, the main target for Iraqi missiles, took refuge in inland cities, especially Jerusalem. Working Tel Avivans have been commuting to their jobs during the day. All the rocket salvos launched at Israel occurred at night.

The lifting of Palestinian curfews comes amid a spate of alarmist reports about Palestinian intentions. According to Israeli newspapers, Baghdad Radio broadcast a cryptic message the other day telling Palestinians to “put into operation the plan from the last meeting.”

Late Wednesday, someone spread twisted nails on the Jerusalem-Tel Aviv highway, causing several flat tires among cars of unsuspecting motorists. A soldier on a bus traveling through northern Israel was lightly wounded by a Palestinian passenger. The assailant, who was captured, had crossed into Israel despite the travel ban on Palestinians, government radio reported.

In Nablus, the largest town in the West Bank, youths threw stones at army patrols during a five-hour break of the curfew. Soldiers fired into the crowd and wounded two Palestinians.

Tuesday in Arab-populated East Jerusalem, arsonists torched an abandoned office of British Airways, and newspapers warned that Jerusalem will become a center of unrest because the government is reluctant to put parts of the city under curfew.

Palestinians have been clamoring for the curfew to be lifted so that farmers can get to their fields and laborers can travel to Israel, where about 150,000 Palestinians hold mainly menial jobs. With the Palestnian economy in a depressed state, the jobs in Israel constitute a main source of ready cash.

Israel’s overall economic slowdown has cost the country half a billion dollars in income, Finance Minister Yitzhak Modai estimated. For workers who at their own initiative stayed home during the crisis, Modai has ordered the lost time to be deducted from paychecks, a move that will probably be challenged by employees.

It has been more than three days since an Iraqi missile was fired at Israel. In all, four missiles were fired last week, one each in four separate attacks.