JERUSALEM — Israeli-Palestinians relations reached a new point of crisis this week as Palestinian Authority leader Yasser Arafat accused Israel of declaring war against the Palestinian people.

Arafat called Wednesday for a general strike in the territories to protest the Likud government's settlement policies and positions on Jerusalem.

In response, Prime Minister Benjamin Netanyahu warned that Israel would view with "severity" any attempt by the self-rule government to step up violence or friction.

"Extreme statements and actions which do not contribute towards moving the diplomatic process forward should be avoided, especially in light of emerging understandings between Israel and the Palestinian Authority to advance their negotiations on a number of important issues," Netanyahu said.

Foreign Minister David Levy phoned Arafat Wednesday evening and warned him against escalating the situation. Arafat reportedly assured Levy he would not let the situation spin out of control.

Amid this climate of tension, hours after Arafat appeared before the Palestinian Council, unidentified terrorists carried out a shooting attack on an Israeli commuter bus traveling on the Bethlehem bypass road near the West Bank settlement of Neveh Daniel.

Initial reports indicated two women were lightly wounded in the attack and another woman suffered heart seizures as a result. They were all treated at hospitals.

Arafat delivered his attack on Israeli policy in an address before the Palestinian legislative council Wednesday in Ramallah.

It was prompted by the demolition the previous day of an eastern Jerusalem building Israel said was illegally built and funded by the Palestinian Authority.

Israel maintains that the Oslo Accords bars the authority from operating in Jerusalem until the issue of a Palestinian entity is resolved.

"There will be no Palestinian state without Jerusalem," Arafat was quoted as saying. "Netanyahu should know he is stupid to have started this battle."

Arafat's strong statement also came a day after the Israeli government approved the first phase of a building project for a new neighborhood in Kiryat Sefer, a Jewish settlement in the West Bank.

The decision to approve constructing 900 housing units marked the first approval of a building plan in the territories under the Netanyahu government, which has lifted a freeze imposed by the previous Labor-led government on construction in Jewish settlements.

The Palestinian Authority has warned against further building in Jewish settlements, calling their expansion a violation of the accords signed by Israel and the Palestine Liberation Organization.

Addressing Palestinian legislators Wednesday, Arafat called for a four-hour strike to be observed Thursday in the West Bank and Gaza Strip to protest Israel's activities in Jerusalem.

He also called on Palestinians in the territories — as well as Arab citizens of Israel — to participate in mass prayers Friday at Al-Aksa Mosque on the Temple Mount.

Jerusalem Mayor Ehud Olmert, a Likud Knesset member, rejected the Palestinian condemnation of the demolition of what they said was a community center, calling it a provocation.

"This building was intended for demolition for months. The Palestinians knew that. The building was empty. It was entirely a provocation," Olmert told Israel Radio.

Netanyahu said Israel had "no policy to hurt the individual rights of any residents of Jerusalem, Jew or Arab."

Opposition members of Knesset warned Arafat against escalating tension, but also levied criticism at the current government.

"It saddens me that this government is with a clear head ignoring international agreements signed by Israel," said Labor Knesset member Yossi Beilin.

The Israeli-Palestinian tensions mounted as Israel emerged from a week of growing conflict with Syria, which was reported to have moved troops closer to the Golan Heights and unveiled a new Scud missile capable of hitting any Israeli city.