Holiday Celebrations Tempered in Israel : Mideast: Millions observe Independence Day despite Islamic extremist threats. Funerals held after suicide bombing of bus.

With daylong displays of air force acrobatics and thousands of barbecues nationwide, millions of Israelis on Thursday defiantly answered Islamic extremist threats to attack Israeli targets on Independence Day with picnics, parties and pronouncements of national pride.

Most of the celebrations, which filled the nation’s parks, beaches and back yards, were more subdued than in the past.

On the day Israel commemorates its creation in 1948--traditionally the biggest party of the year, but a day that Palestinian fundamentalists had vowed last week to “turn into hell”--there also were funerals and condemnations after the second of two suicide bombings in a week on a passenger bus deep inside northern Israel left six dead in Hadera on Wednesday.

Police investigators reconstructing the attack on the packed commuter bus concluded Thursday that it was the work of a Palestinian fundamentalist suicide-bomber. He was from a village near the Green Line separating Israel from the occupied West Bank.

The attacker was waiting for the bus in Hadera, investigators said. He boarded it carrying one bomb after planting another explosive device on a nearby bench. The second bomb was timed to detonate about 11 a.m. Wednesday, when sirens sounded throughout Israel to mark its Memorial Day.

Palestinian sources and a leaflet from the fundamentalist Palestinian group Hamas identified the suicide bomber Thursday as Ammar Amarneh, 22. Reports from his village--Yabad, in the occupied West Bank near the border with northern Israel--said he left a note in a local mosque appealing to his family not to mourn his death.

The Hamas leaflet claimed the young farmer as a member of the group’s armed wing, Izzadine Qassim; it proclaimed him “our heroic martyr.” Black flags of mourning flew throughout the village, and most of its 10,000 residents paid condolence calls on Amarneh’s family.

Among the Israeli dead, police said Thursday, was an Arab woman from Hadera: Bilha Boutin, 49. She apparently was standing beside the suicide bomber when he detonated the powerful charge. Boutin absorbed most of the blast, which forensic experts said prevented even higher casualties on the bus, packed with almost 70 passengers.

Of the five Israeli dead, only one was identified as a soldier. He was Sgt. Ari Perlmutter, who was buried in Rehovot on Thursday afternoon.

But even in Hadera on Thursday, there were many more picnics than funerals. The mayor there decided the Independence Day celebrations should go on, despite the grief, anger and fear in the working-class town of 50,000. Top Israeli officials also urged the nation to go forward in Independence Day interviews and speeches.

President Ezer Weizman called on the nation not to dwell on the recent terror and death, but to focus on Israel’s economic and diplomatic growth since the international community carved it out of British-ruled Palestine after the Nazi genocide of Jews in the 1930s and 1940s.

“Despite the terror, despite the uneasiness, despite the situation now . . . we have a great country,” he said on Israel Radio, as Israeli pilots in F-16 jet fighters conducted dizzying acrobatic displays in the skies.

And despite the recent wave of terrorism that Hamas has said is meant to retaliate for a Jewish settler’s massacre of about 30 Palestinians at prayer in a Hebron mosque on Feb. 25, Weizman insisted that security in Israel is better than it has ever been.

Israeli Prime Minister Yitzhak Rabin echoed Weizman’s expressions of pride but also reaffirmed his vow to continue the peace process with the Palestine Liberation Organization, despite opposition in the aftermath of the suicide attacks. Hamas opposes the process, and Rabin said the bombings are politically motivated “to murder peace.”

In a series of interviews and talk-show appearances, Rabin asserted that an even higher level of violence and terrorism is the only alternative if the two sides do not reach their long-delayed accord, which promises an Israeli withdrawal and Palestinian autonomy beginning in the Gaza Strip and Jericho.

As he spoke, Israel’s security forces remained on heightened alert, aggressively enforcing the government’s strict closure of the occupied territories. A large-scale redeployment of Israeli troops also began in the West Bank on Thursday, as officials heeded Rabin’s decision--made after the Hadera bombing--to move soldiers protecting Jewish settlements in the territories back across the Green Line to reinforce security in sovereign Israel.

Rabin said Thursday that security forces are still responsible for the safety of the more than 120,000 Jewish settlers who moved into government-financed settlements in the occupied territories after Israel conquered the lands in the 1967 Arab-Israeli War. But he added that residents of sovereign Israel took precedence over the settlers.

To protest that decision and the “Gaza-Jericho first” accord, several thousand Jewish settlers marched in Gaza on Thursday. Police said the demonstration was peaceful.