Arafat in First Talks With Israel Envoy Since Massacre : Mideast: Secret meeting is bid to restart peace process. PLO wants new controls on settlers in occupied areas.

PLO Chairman Yasser Arafat held his first direct talks Monday with an Israeli envoy since last month’s Hebron massacre, seeking in a secret meeting here to produce a breakthrough to allow peace talks to resume on Palestinian self-rule.

Palestine Liberation Organization officials said they hope that Israel will agree to new controls on Jewish settlers in occupied lands and a force of international observers to ensure Palestinian security--guarantees that would persuade the PLO to return to the peace table.

After two days of Egyptian and American mediation, the two sides are discussing a package that would include a stepped-up timetable for negotiating the future of Jewish settlements in the occupied territories, armed international observers in Palestinian areas and further controls on the arms carried by Israeli settlers, sources close to the negotiations said.

“If these measures are approved by the Israelis, it will relieve the situation,” a senior PLO official said. “It will help a lot. And I think, yes, it will bring us back to the peace talks.”

Arafat met with Jacques Neriah, Israeli Prime Minister Yitzhak Rabin’s political adviser, and David Sultan, Israel’s ambassador to Egypt. Their discussions were the first since the Feb. 25 attack that killed more than 40 Palestinians in a Hebron mosque.

Any breakthrough in the impasse is likely to be delayed until Israel makes a final decision on the issue of further controls on Jewish settlers and the U.N. Security Council acts on a resolution condemning the massacre, officials here said. PLO sources said Israel indicated it will have a final decision on the PLO’s demands by today.

“The Israelis said they will answer these demands and will send the answer directly to Tunis,” the PLO headquarters, a PLO official said. “The Americans and the Egyptians are exerting a very big effort to bridge the gap. But still, there is a gap.”

In the Tunisian capital, the Associated Press quoted unidentified officials as saying Israel proposed “nothing new” in Monday’s meeting. Egypt’s Middle East News Agency said Israel has proposed a summit between Arafat and Rabin--a plan Arafat is likely to resist until he is assured, in advance, of Israeli concessions.

So sensitive are PLO-Israeli contacts in the wake of the massacre that the PLO issued a denial that Monday’s meeting even occurred.

After a marathon meeting Sunday night and early Monday with Egyptian Foreign Minister Amir Moussa and a dinner meeting with Egyptian President Hosni Mubarak, Arafat said Palestinians “insist that the Security Council condemns this ugly massacre (in a resolution) that provides full protection for our people and disarms the settlers.”

Sources said that the two sides are trying to reach agreement on proposals to help meet PLO demands for more security guarantees and controls on settlers but that they remain divided on details for implementing them.

In general, the two sides are discussing a package that would include:

* Negotiations on the future of Jewish settlements that could begin as early as mid-April or early May, after Israeli withdrawal from the West Bank town of Jericho and the Gaza Strip. This is much earlier than the two years originally envisioned for settlement talks, although the Declaration of Principles already calls for discussion of the issue as part of the second phase of negotiations.

* The Security Council in its resolution would call for international observers to guarantee Palestinian security. Though the Israelis might agree to lightly armed observers, there is still no agreement on whether they would be deployed only in Gaza and Jericho or throughout the occupied territories.

* Controls on the weapons Jewish settlers can carry in populated Palestinian areas.

* Dismantlement of at least some settlements, in particular a Palestinian demand to remove 450 Jewish settlers from Hebron. Israeli Tourism Minster Uzi Baram said after Sunday’s Israeli Cabinet meeting that more than half the 16 ministers favor removing the Hebron settlers. Rabin blocked a vote on the issue and delayed a decision until next week.

“This is what is on the table, but there is not one single point that has been agreed,” said one source.

Officials from Egypt, the only Arab country to sign a peace treaty with Israel, have emphasized the need for Israel to move on more security guarantees. “Security is not an issue important for the Israelis only,” Moussa said. “From now on, we cannot discuss Israeli security without discussing Palestinian security as well.”

PLO officials have lobbied for more international support for their demands, sending chief negotiator Nabil Shaath to Washington, London and Oslo for talks with American and European officials.

Shaath, returning to Cairo on Sunday night, said U.S., British and Norwegian officials have all “agreed in principle on the necessity of reining in the terroristic settlement groups and preventing the Israelis from carrying weapons in Palestinian cities and villages.”

Shaath said British Foreign Secretary Douglas Hurd and Norwegian Foreign Minister Bjorn Tore Godal all signaled “full agreement on . . . and participation in (the) presence” of an international force in the occupied territories. He said American officials “expressed their agreement in principle, but they need some time to study the arrangements and the form.”

Arafat is under pressure to obtain Israeli concessions soon to provide a cover for returning to the talks at a time when outrage over the massacre has prompted widespread Palestinian calls for pulling out of the peace process.