JERUSALEM — Security arrangements in the West Bank town of Hebron have become the leading obstacle to an agreement on the expansion of Palestinian self-rule in the West Bank.

"There is a crisis in the talks," said Israeli Environment Minister Yossi Sarid, a participant in the negotiations with the Palestinians.

Israeli Foreign Minister Shimon Peres and Palestine Liberation Organization chairman Yasser Arafat, after meetings last week at the Red Sea resort of Taba, were unable to resolve the dispute. Israeli and Palestinian negotiators tried again this week in Eilat.

The next phase of Palestinian self-rule calls for an Israeli army redeployment from major Palestinian population centers in the West Bank. But Hebron, the only West Bank city with a Jewish settler population — some 400 Israelis live in the center of the town — presents thorny security issues.

Last week, Prime Minister Yitzhak Rabin proposed for the first time a partial Israel Defense Force troop withdrawal in Hebron.

Rabin is insisting that Israeli troops remain in control of areas deemed necessary for the protection of settlers in Hebron and in the nearby settlement of Kiryat Arba.

Arafat is pressing for an Israeli declaration that Hebron is Palestinian. Although agreeing on a phased withdrawal of Israel troops, Arafat is demanding that it ultimately be a complete pullout.

Rabin expressed hope Monday that a Hebron solution would be found — but he would not speculate when the interim agreement slated to be completed this month would be signed.

The two sides have also locked horns over control of the Tomb of the Patriarchs in Hebron, a site holy to Jews and Arabs alike.

Over the weekend, the Palestinians rejected an Israeli compromise for security in Hebron.

Under the proposal, drafted by the IDF's Maj. Gen. Uzi Dayan, the Palestinians would have all civil and municipal responsibility in Hebron. The IDF would withdraw from some neighborhoods, but oversee security in most areas.

In exchange, Israel would take new steps toward normalizing life in Hebron for its 120,000 Palestinian residents, including reopening its central market and some main roads.

Arafat, while negotiating, has apparently issued calls for a jihad, or armed struggle, if the talks fail.

Likud Knesset member Ze'ev "Benny" Begin and Labor Knesset member Emanuel Zismann unveiled a videotape of recent Arafat appearances. The video included an Aug. 6 Arafat speech in the Gaza Strip, in which he said; "If the Israelis think that we have no alternatives [to negotiations], by Allah, they are wrong.

"The Palestinian people are prepared to sacrifice their last boy and their last girl in order to wave the Palestinian flag."

Begin said the statements were a clear warning against Israel's continuing talks with the PLO.

In Washington, meanwhile, the chairman of the PLO's government-in-exile, the Palestine National Council, contradicted Arafat's pledge to drop the PLO's covenant calling for the destruction of Israel 60 days after Palestinian elections in the territories.

The backpedaling followed three days of violence between Jewish settlers and Palestinians in Hebron.

The clashes were sparked by repeated attempts by Jewish settlers to remove a Palestinian flag from a girl's school in the town.

On Wednesday, the day of the most violent settler-Palestinian clashes, the army declared the area a closed military zone.

Israeli soldiers fired rubber bullets, tear gas and concussion grenades to break up one melee.

On Tuesday, Jewish settlers threw eggs at Peace Now activists, who visited Hebron to show solidarity with the Palestinian school.

Maj. Gen. Ilan Biran, commander of an area that includes the West Bank, ordered the school to take down the Palestinian flag.

But Hebron Mayor Mustafa Natshe insisted the flag remain aloft.

Discontent with the peace process sparked protests in Jerusalem and Washington on Wednesday, the second anniversary of the signing of the Declaration of Principles on the White House lawn.

In Jerusalem, police used force and water cannons to disperse about 2,000 protesters who gathered outside the prime minister's residence. More than 20 people were arrested and 15 injured. About 100 people also protested the peace process in front of the White House and on Capitol Hill.

West Bank tensions have escalated since Friday of last week, when five unidentified, armed men wearing Israeli army uniforms killed 23-year-old Salman Azamareh of Halhoul, near Hebron.

Rabin said that if Jews killed Azamareh, the Palestinians would likely demand a greater presence of Palestinian police around Hebron.

Two separate Israeli extremist groups have taken responsibility for the attack. One, Ayal, Hebrew for "ram," is reportedly tied to the illegal anti-Arab Kach Party. The other group calls itself the Sword of David.