2 Israelis Killed, 2 Settlers Hurt as Palestinians Fire on Car : Mideast: Attack heightens fears of new cycle of terrorism and retaliation as self-government nears.

Palestinian gunmen, spraying an Israeli car with rifle fire, fatally wounded a kindergarten teacher and a seminary student here Wednesday morning.

Shalva Ozana, 24, of Jerusalem, a teacher at the Jewish settlement of Beit El on the West Bank, was shot to death while the driver of the car in which she had hitched a ride fixed a dangling tailpipe.

Yitzhak Weinstock, 19, a student at a yeshiva in the West Bank settlement of Eli, was wounded in the head, neck and chest as he lay under the car, helping in the repair. He died overnight.

The driver of the car, a rabbi, and his daughter, both settlers on the West Bank, were also wounded in the attack.

The gunmen, who had fired from a passing car, apparently escaped through the morning rush-hour traffic despite army roadblocks, security checks and house-to-house searches of the area, about seven miles north of Jerusalem.

The attack heightened fears of a new wave of radical terrorism against Jewish settlers in the West Bank and the Gaza Strip, violent retaliation by them against other Palestinians and a further deterioration in overall security as Israel prepares to pull back its forces under the agreement on Palestinian self-government.

The radical Islamic Resistance Movement, known as Hamas, said its military wing had carried out the El Bireh attack as the first of five such strikes to avenge the death of Palestinian guerrilla leaders killed recently by Israel.

Angry settlers responded to the attack by stoning Palestinians in East Jerusalem, around the Old City and in El Bireh and neighboring Ramallah. Additional troops were deployed in the West Bank to prevent more violence.

The attack nonetheless dramatized for the 125,000 settlers in the West Bank and Gaza their vulnerability as Israel prepares to withdraw its forces in the two regions and hand over authority to a transitional government led by the Palestine Liberation Organization.

Uri Ariel, a leader of the Council of Jewish Communities of Judea, Samaria and Gaza, urged Israelis not to harm innocent Palestinians and blamed the government of Prime Minister Yitzhak Rabin for failing to protect Israelis.

But, sketching plans for a new settler self-defense force staffed by army veterans, led by senior reserve officers and heavily armed, Ariel warned, “Anyone who thinks we are going to read Psalms all day long is mistaken.”

Yehiel Leiter, a council spokesman, said that settlers would again block West Bank roads this morning, preventing thousands of Palestinians from getting to their jobs in Israel, and will carry out other acts of civil disobedience.

Leiter said that the settlers also plan to launch a campaign to double the number of settlements in the West Bank, Gaza and occupied Golan Heights to 260. While new settlements would inflame the Palestinians, who want all existing communities dismantled, Leiter said such an effort will demonstrate Israelis’ determination to hold the territory and increase the security of the present communities.

Rabin, visiting Brussels, reiterated Israel’s determination to honor its pact with the PLO on self-government despite terrorist attacks.

He argued that Hamas and other extremists are carrying out such attacks in an attempt to upset the peace process at a sensitive time, less than two weeks before Israel is to start its military pullback.

Since Israel and the PLO reached their basic accord in late August, 14 Israelis have been killed by Palestinians, and 34 Palestinians have been killed in clashes with Israelis, according to figures compiled by the Associated Press and Reuters news agencies in Jerusalem.

* PLO OVERTURE: The PLO hands over ID tags and confirms the death of a missing Israeli soldier. A39