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Israeli combat helicopters attacked Palestinian Authority President Yasser Arafat’s police, radio and navy headquarters Thursday after an enraged Palestinian mob captured and lynched two Israeli soldiers and then dragged a corpse through city streets.

It was Israel’s fiercest military assault against Palestinian targets here in decades and pushed the two adversaries alarmingly close to all-out warfare, leaving a once-promising peace process in ruins.

Downtown Ramallah was shrouded in smoke and flames after the strikes temporarily knocked out the city’s electricity and Voice of Palestine radio, and left residents cowering in their homes.

Arafat called the attacks “a declaration of war,” while Israeli officials maintained that they had launched limited and surgical strikes in retaliation for the brutal killings--and to serve as a deterrent.

“The message is, don’t mess with us. Stop the violence,” said Israel Defense Forces spokesman Col. Raanan Gissin.

A somber Israeli Prime Minister Ehud Barak went on national television and called the killings “a brutal, coldblooded lynching” that could not go unanswered.”

“They were lynched, mutilated and burned,” Barak said of the two army reserve soldiers who apparently had driven into a Palestinian-controlled part of the West Bank by mistake. Barak said that a third, unidentified Israeli was killed and his body returned along with those of the soldiers. He said he held Arafat’s Palestinian Authority responsible for the killings.

Israel sealed off Palestinian-controlled areas and deployed tanks across the West Bank, bracing for more confrontations. Arafat’s grass-roots Fatah organization vowed revenge, and Palestinian officials announced the release of jailed leaders of the Islamic extremist group Hamas, as if to signal the launching of a terrorism campaign.

The spiral of violence eclipsed all international efforts to negotiate a cease-fire to the two weeks of bloody riots that have left more than 95 people dead, the vast majority of them Palestinians. The 7-year-old Oslo peace accords, which last month still offered some hope of ending the half-century Israeli-Palestinian conflict, appeared to be finished.

In Washington, President Clinton said: “Now is the time to stop the bloodshed, to restore calm, to return to dialogue and, ultimately, to the negotiating table. The alternative to the peace process is now no longer merely hypothetical. It is unfolding today before our very eyes.”

Both sides were seething and blaming each other for the escalation. Israel’s right-wing opposition charged that Barak hadn’t hit the Palestinians hard enough. Palestinian leaders called for international intervention to “stop the madness.”

Late Thursday, Israeli helicopters continued attacks on police stations in at least three other Palestinian towns, including Nablus, home to the best-organized Palestinian militia. And an ancient synagogue in the Palestinian-controlled city of Jericho was torched by a Palestinian mob; Israeli gunships blasted the Palestinian police academy in Jericho in retaliation.

Barak, weakened politically by desertions from his administration precisely over his peacemaking efforts, called for a “national emergency government” to confront the most devastating crisis he has faced since taking office 15 months ago. He met until early today with right-wing leader Ariel Sharon, a hawkish foe of making concessions to the Palestinians, on plans to join forces.

Barak denied reports that the Israeli army had targeted Arafat in Thursday’s air raids. Arafat, in Gaza City at the time, was not hurt.

Reservists Stumble Into Palestinian Lands

The crisis erupted early Thursday when the Israeli reserve soldiers driving a Mazda sedan made a wrong turn into Palestinian-controlled territory and were taken at gunpoint to downtown Ramallah, according to Israeli officials. They were detained by Palestinian police and taken to a nearby police station.

As word spread that the Israelis were in detention, hundreds of civilians, some of them armed, surrounded the police station chanting “Allahu akbar! (God is great!)” and “Death to the death squads!”

The third man with the soldiers was apparently burned to death when the mob upended and burned their vehicle.

Palestinian police made some effort to control the surging mob, but it swiftly forced its way into the police station and up to the second floor where the soldiers were being held. There, the Israelis were beaten and stabbed to death, according to various accounts. At least one of the bodies was then dropped out of an upper-story window and onto the pavement below, where cheering men stomped and pounded on it.

A mutilated corpse was then dragged through the streets to Ramallah’s central Manara Square.

Some in the mob apparently believed that the Israelis were part of an undercover unit that poses as Arabs to infiltrate Palestinian towns--despite the fact that at least two of the Israelis were wearing camouflage fatigues.

Thirteen Palestinian police officers were injured trying to keep the mob at bay, Palestinian authorities said. The two beaten bodies were handed over to the Israeli military.

Israel quickly massed troops around Ramallah and closed off all West Bank areas and the Gaza Strip. Israeli military officials said they gave the Palestinian police three hours’ notice and fired warning shots before launching the airstrikes.

The police station in Ramallah was the first target hit by missiles fired from helicopter gunships. The second floor of the police headquarters, where the beatings took place, was leveled. Black columns of smoke rose from the city, and Palestinian officials said at least 12 people were injured there.

Taking a page out of the North Atlantic Treaty Organization’s bombing campaign in Yugoslavia last year, Israel then fired on the Palestinian radio transmission tower, knocking the Voice of Palestine off the air. Israeli officials had charged that the radio incited crowds during the last two weeks by broadcasting nationalistic songs and inflammatory reports.

“The people are very scared,” Ramallah resident Mohammed Basset said. “Helicopters are everywhere, and we don’t know what is going to happen. This is war. What happened here is war. But what can we do? We will do whatever Chairman Arafat tells us.”

Arafat’s Headquarters in Gaza City Evacuated

Arafat’s seafront headquarters in Gaza City and buildings near it were hurriedly evacuated shortly before gunships hit a Palestinian police building believed to be the headquarters of the Fatah movement’s militia. Five docked Palestinian vessels belonging to the coast guard also were blown up, and a guardhouse next to Arafat’s residence was hit.

Later Thursday, Israel was reinforcing its troops at the border with Egypt and shut down the Erez crossing from the northern Gaza Strip into Israel. Israeli military boats were visible off the coast of Gaza.

In a show of defiance, crowds of young Palestinian men marched through the streets of Ramallah and Gaza City on Thursday night, many holding automatic weapons aloft and waving Palestinian flags.

Thursday’s terrifying escalation killed once and for all any chance of an imminent peace agreement between Barak and Arafat.

Arafat, visiting wounded Palestinians in a Gaza hospital, declared that he would press his “march to Jerusalem” and an independent Palestinian state. He had been forced to cut short a meeting with U.N. mediators when notified of the Israelis’ warning that they were about to bomb. A short time earlier, he met with CIA Director George J. Tenet, who was in the region to discuss Israeli-Palestinian security arrangements.

Barak, who until recently seemed the Israeli prime minister most likely to make peace with the Palestinians, suddenly found himself on the brink of unprecedented confrontation.

In his television appearance, Barak said Arafat “does not appear to be a partner for peace at this time.”

Acting Foreign Minister Shlomo Ben-Ami gave a frankly bleak assessment: “In its present form, the peace process has no existence.”

Revenge was not likely to stop with Thursday’s missile attacks.

“We will settle our score with the murderers, and even if we don’t know who they are now, we will certainly know in the future,” said Barak’s security advisor, Danny Yatom, a former head of the Mossad spy agency.

“The intention of our action was, first of all, to convey a signal and warning to Arafat, that as far as we are concerned, certainly after today, the rules of the game have changed,” Yatom added.

Although Barak ordered the strikes as retaliation for the deaths of his soldiers, he also intended to transmit a wider message, to both his domestic public and the Arab world at large. Many Israelis believe that their country’s image as a powerhouse has been eroded by perceived weakness--in Israel’s withdrawal under fire from Lebanon and its apparent inability now to halt a persistent Palestinian uprising.

Israel’s security establishment has also been warning of the release in the last few days of dozens of Hamas and Islamic Jihad militants from Palestinian jails. On Thursday night, Palestinian officials confirmed that they had freed almost every such prisoner, including Mohammed Deif, the No. 1 suspect on Israel’s list of most-wanted terrorists, and others convicted in a series of terrorist bus bombings.

A senior Israeli security official said authorities expect terrorist attacks against Israeli targets “in a matter of hours or days, not more.”

Palestinian leaders offered regrets for the killings of the Israeli soldiers but said the act had to be seen in the context of the killing of scores of Palestinians in skirmishing with Israeli troops during the last two weeks. But Israelis were uniformly sickened by the tragedy.

“This will be like a mark of Cain on the Palestinians’ forehead forever,” said Avshalom Vilan, a legislator from the leftist Meretz Party.