Islamic Militants Rally Against Arafat in Gaza; Soldier Is Laid to Rest in Jerusalem : Mideast: PLO chief is threatened with more unrest if arrests of fundamentalists continue. 15,000 mourn kidnaped corporal killed in raid.

Moving toward a showdown, thousands of Islamic militants rallied against PLO chief Yasser Arafat on Saturday, and gunmen threatened to “make Gaza burn” if the arrests of fundamentalists continue.

The Palestinian self-rule government led by Arafat urged Israel to resume talks on expanding autonomy and to reopen Israel to Gaza workers. It said the sanctions imposed after the kidnaping of an Israeli soldier played into the hands of extremists.

The hostage, Cpl. Nachshon Waxman, 19, was shot to death Friday during an army raid on the kidnapers’ West Bank hide-out. Waxman’s three captors and an Israeli commando were also killed.

In Jerusalem, 15,000 Israelis attended Waxman’s midnight funeral. In his eulogy, army Gen. Yitzhak Mordechai said commandos “were seconds late” in saving Waxman: “The scoundrels (the captors) shot you while you were tied and could not fight back.”

Near the grave site, dozens of soldiers held each other and wept. Hundreds of police were deployed at the funeral to prevent anti-Arab riots.

Hamas, the Muslim fundamentalist group that held Waxman, warned Saturday that it will kidnap more Israelis unless Prime Minister Yitzhak Rabin agrees to free 200 Palestinian prisoners.

A strike called by Hamas to mourn the dead kidnapers shut down most of the West Bank on Saturday.

The Izzidin al-Qassam, Hamas’ underground military wing, threatened to unleash a civil war if Palestinian police continued to arrest Hamas activists. Under pressure from Israel and the United States, Arafat ordered more than 160 rounded up last week as part of the effort to find the kidnapers.

“Izzidin al-Qassam’s answer will be to make Gaza burn,” said a Hamas leaflet distributed Saturday. “Hamas doesn’t allow any faction to lay a finger on its followers.”

Waxman’s abduction forced Arafat into an unwanted showdown with Hamas, his strongest political rival. In the past, Arafat was reluctant to crack down, fearing his fragile government might not survive a confrontation in the streets.

But after the kidnaping, Rabin turned up the pressure, insisting that the hostage was held in Gaza and that Arafat was solely responsible for the soldier’s fate. Palestinians have self-rule in all of Gaza but only a portion of the West Bank.

In response, Arafat ordered the arrest sweeps.

Yasser Abed-Rabbo, information minister in the self-rule government, suggested Saturday that the crackdown against Hamas will continue.

“We will not permit anything to harm the national security,” he told reporters after the weekly Cabinet meeting. “The Palestinian Authority . . . will continue taking measures to ensure national security.”

In a first step, the Cabinet decided to ban the use of mosque loudspeakers for political propaganda.