JERUSALEM — U.S. Secretary of State Madeleine Albright's scheduled visit to the region next week — her first since becoming America's top diplomat — is widely viewed as crucial to reviving the moribund Israeli-Palestinian peace process.

Few want to imagine what may happen here if she fails to revive the peace process.

But given the wide gaps separating the Israelis and Palestinians, few believe she can achieve any meaningful progress.

In addition, while Israeli officials are publicly welcoming Albright's visit, they are keenly aware that her trip may dramatically underscore major differences between the Clinton and Netanyahu governments.

American officials, meanwhile, are downplaying expectations of what Albright may accomplish.

"The peace process is in trouble," U.S. State Department spokesman James Rubin said last Friday. Albright is a "realist and not a magician. She has realistic expectations about what can be achieved."

In fact, given the distrust and demands emanating from both sides, many believe that Albright needs to come equipped with a magic wand.

In advance of her trip, Israeli and Palestinian officials were slated to lay out their positions during meetings this week in Washington with their American counterparts.

Chief Palestinian negotiator Saeb Erekat said last Friday that Palestinian Authority officials would call on the United States to press Israel to stop construction projects on disputed land, and to stop confiscating Palestinian land and demolishing Arab homes that were allegedly built without proper permits.

These are familiar Palestinian demands.

Equally familiar is the stance of Prime Minister Benjamin Netanyahu, who said this week there would be no Israeli concessions unless Palestinian Authority Chairman Yasser Arafat first cracked down on terrorism.

Netanyahu has been making the demand since July 30, when two suicide bombers detonated explosions in Jerusalem's Mahane Yehuda open-air market.

Over the weekend, a 15th Israeli — 73-year-old Ilya Gazrach — died from injuries sustained in that attack.

In another demand, Netanyahu spokesman David Bar-Illan said in an interview this week that Palestinians must abrogate those sections of their national covenant that call for the destruction of Israel — something Arafat, and the previous Labor government, maintain was accomplished in 1996.

Israel has made it clear there will be no further redeployment of its forces from rural areas of the West Bank this weekend.

This is likely to result in more distrust between the sides.

According to the timetable set forth in the Hebron Agreement, which was signed in January, Israel was to carry out another second-phase redeployment during the first week of September.

Arafat has been calling for a substantial redeployment this time to make up for what he described as the meager 2 percent of the West Bank that Israel offered — and the Palestinian Authority refused to accept — in the first such redeployment six months ago.

That pullback was never implemented.

The Israeli leadership's tough postures deliberately focus on the twin issues of terror and security in order to take the focus off the give-and-take of further negotiations.

They are also designed to defend the Netanyahu government's positions from what some fear may develop into a concentrated assault by Albright.

There are indications from Washington that the Clinton administration, having finally resolved to cast the secretary of state into the fray, is determined to make proposals calling for a limitation on Israeli construction activities and for a Palestinian crackdown on terror.

The American proposal regarding Israeli construction could potentially create tension between Jerusalem and Washington.

Netanyahu has said repeatedly that the delicate fabric of his conservative-religious coalition could not survive a decision to cease construction.

In addition, Netanyahu is personally and ideologically reluctant to halt construction — particularly of the Har Homa project in southeastern Jerusalem. Palestinians suspended peace negotiations after groundbreaking for the project began in March.

According to the Israeli daily Ha'aretz, the United States is reworking a plan it initially proposed prior to the July 30 twin suicide attack.

This would restrict Israeli construction activity to already existing settlements.

West Bank settler leaders warned Sunday that if Netanyahu agrees to even a temporary halt, he will lose their support — and ultimately his office.

Netanyahu's aides were said to be preparing a counter-offer of their own: a suspension of work at Har Homa during the High Holy Days, during which the Palestinian Authority would vigorously fight terror.

In one apparently positive development for the peace process, Israel announced Monday it was partially easing the closure imposed on the West Bank and Gaza Strip right after the Mahane Yehuda attack.

Beginning Monday, Israel was allowing 4,000 Palestinian workers from the West Bank and 2,000 from Gaza to enter Israel provided that they are married and over 35, the Foreign Ministry announced.

Also, Israel will allow 2,000 merchants, 250 teachers and 200 employees of the Palestinian Authority to enter the Jewish state.

The Palestinian Authority, which said the closure amounted to collective punishment, said the step taken this week by Israel was not enough.

"To give passage to a few people is like putting cosmetics on a truly ugly face," said Palestinian Information Minister Yasser Abed Rabbo.

Confronted with a peace process in tatters, Albright is not planning to engage in the kind of shuttle diplomacy that Middle East envoy Dennis Ross engaged in last month — with little to show for his efforts.

Indeed, to prevent the spotlight from falling on the Israeli-Palestinian crisis, Albright is also planning to visit Syria, Jordan, Egypt and Saudi Arabia.

Her visit to Damascus is considered crucial to bringing an end to the recent escalation of violence in southern Lebanon, where Syria has thousands of troops and maintains a strong influence on the anti-Israel activities of Shi'ite Hezbollah militants.

Past experience has shown that Damascus gives the green light to Hezbollah attacks on Israeli troops — a reminder that regional peace cannot be achieved without Syrian President Hafez Assad.

But Netanyahu, interviewed Monday by Israel Radio, seemed as anxious to keep expectations low regarding Syria as he was regarding the Israeli-Palestinian track.

"We are ready to resume negotiations. But they want to start from the endpoint," he said of Syria's demand that talks resume where they left off with the previous Labor government.

Netanyahu often has stated that the negotiations, which were suspended in March 1996, should resume with no preconditions.

Given current circumstances, it appears clear Albright will have as little success on the Israeli-Syrian track as former U.S. Secretary of State Warren Christopher, who made more than 20 trips to Damascus during his tenure.