JERUSALEM — Although Palestinians this week mourned the death of Hamas terrorist Yehiya Ayash and vowed revenge, his killing has not slowed the campaign leading up to Palestinian elections.

Too much is at stake in what for Palestinians is a first taste of democracy. The death of the man known as "the Engineer" — whom many Palestinians hailed as their national hero — will not be allowed to spoil the Jan. 20 balloting.

Ayash, who topped Israel's most-wanted list for masterminding a series of suicide bombings that killed scores of Israelis, was killed in an explosion last Friday after answering a booby-trapped cellular phone at a hideout in Gaza.

No group claimed responsibility for the assassination. And Israeli officials would neither confirm nor deny Israel's involvement in Ayash's death.

But Islamic fundamentalist groups put the blame squarely on Israel and vowed to avenge Ayash's murder with attacks against the Jewish state.

For his part, Palestine Liberation Organization leader Yasser Arafat was well aware of the electoral problems the killing could create.

Last Friday, hours after Ayash's death was confirmed, Arafat rushed to pay condolences to Mahmoud Zahar, the Hamas spokesman in Gaza.

In a further attempt to prove his sympathy for the fallen terrorist, Arafat sent a contingent of Palestinian police officers to Ayash's funeral procession the next day.

But the Palestinian leader conveniently stayed away from the funeral, preferring to spend Saturday in the West Bank town of Bethlehem honoring the Christian Orthodox community on the occasion of its New Year.

For Arafat, it was all a delicate balancing act. At a rally Sunday in the village of Dura near Hebron, he called Ayash "a martyr" and urged Israel not to commit any murders "on the soil of Palestine."

But he was careful not to embark on a collision course with the Israelis. What made the balancing act particularly delicate was the fact that there was no love lost between "the Engineer," his colleagues and Arafat.

Arafat's main concern is to reach Palestinian election day without any major political blunders– and to win the contest. For Arafat, all the rest is marginal.

Ayash's death was certainly a blow to Palestinian society. But Palestinians take their heroes' deaths with a measure of equanimity that is sometimes difficult to understand.

In the Gaza Strip, Palestinians observed a three-day mourning period with a general strike. Extremists, meanwhile, promised retaliation.

The leader of Islamic Jihad, Ramadan Shallah, warned Monday that Israel would pay "a heavy price" for the deaths of Ayash and Fathi Shkaki.

Shallah was chosen to head Islamic Jihad after Shkaki, its previous leader, was assassinated in Malta in October. His group blames the slaying on the Mossad.

In an interview conducted at Islamic Jihad's office in Damascus, Shallah said the killings would "accelerate jihad [holy war] and attacks against Israeli targets."

"The Israelis have to know that they should also pay a price for their terrorism. It will be a heavy price and will be as heavy as the assassination of both leaders: Shkaki and Ayash," Shallah said.

But in the West Bank and in eastern Jerusalem, Palestinian reaction to Ayash's death was mixed.

The shops of eastern Jerusalem on Sunday morning provided a case in point: Some were closed simply because it was Sunday, while others shut down in observance of the strike. Still, most merchants opened their shops and chatted with tourists.

True, they were ready to close if ordered by Hamas, but they were not rushing to give up business yet.

"The strikes do not serve any purpose," said Ahmed, who owns a snack shop near Jaffa Gate in Jerusalem's Old City. "We are the only ones who lose out. I have lost years of income because of those strikes."

Ahmed , who at a time when critics of the Palestinian Authority are summoned for police questioning in the middle of the night declined to provide his last name, condemned the killing of Ayash.

"Is this man a hero or a terrorist? I really don't know," Ahmed said. "But I can tell you one thing: For the Palestinians he is a hero."

Many Palestinians, including Ahmed, did not criticize the killing itself as much as decry its timing. "The Israelis should have waited until after the elections," Ahmed said.

Israelis, meanwhile, were angered to see televised images of Palestinian police officers saluting over Ayash's grave during Saturday's funeral.

"What would you say if an IDF [Israeli army] officer would salute over the grave of Baruch Goldstein?" Sufian Abu Zaide, an official in the Palestinian Authority, was asked this week by an Israel Radio moderator who questioned how Palestinian police officers could pay tribute to someone who in Israeli eyes was nothing more than a mass murderer.

Goldstein carried out the February 1994 Hebron massacre, killing 29 Palestinian worshippers at the Tomb of the Patriarchs before he was killed by an angry crowd of people who survived his attack.

The Palestinians, by and large, draw a distinction that cannot be bridged between Palestinian and Israeli murderers.

Perhaps it is the result of 28 years of Israeli rule; perhaps it is a matter of a different political culture. But in the eyes of many, all the Baruch Goldsteins are murderers and the Yehiya Ayashes are freedom fighters.

By the same token, some Palestinians said that Israelis paint them with too broad a brush, as if all those who mourned Ayash's death were potential terrorists themselves.

"Not all the Palestinians who attended Ayash's funeral are Hamasniks," said Sheik Abdullah Nimer Darwish, a leading member of the Islamic Movement in Israel, a fundamentalist Israeli Arab group. He said the killing of Ayash was a slap in the face for those Palestinians who believed that they were now on the road to sovereignty.

Meanwhile, the killing of Ayash left Hamas with a dilemma. On the one hand, Hamas wanted to stick to its recent understanding with the Palestinian Authority to lower its terrorist profile in order not to interrupt the Israel Defense Force's redeployment process in the West Bank.

On the other hand, the Hamas leadership is well aware that their supporters expected a strong reaction to the murder of their top soldier.

In a leaflet circulated last Friday in Gaza, Hamas accused the Palestinian Authority of complicity in Ayash's murder. Although Hamas leaders did not repeat the accusation in speeches over the weekend, the message gathered adherents.