Peres gave Sharon his support for the cuts in the state budget and in return, received a little bit of leeway for his contacts with the head of the Palestinian Preventive Security apparatus in Gaza, Mohammed Dahlan, PA economic adviser Mohammed Rasheed and the speaker of the Palestinian, Abu Ala.

Suddenly it appears that the Arabs' political might is less imposing than previously thought, and this is understood in the PA, too.

Peres is hoping that if he succeeds in bringing about a cease-fire, he will be able to win public backing for his political plan to establish a Palestinian state as soon as possible and discuss the future of the territories. Because of the short rope that Sharon has given him, Peres cannot talk about retreating or concessions, but has to stick to the code words "negotiations on the basis of UN Resolution 242," which mean a retreat to, or near to the pre-1967 borders. For their part, the Palestinians are not rushing to buy the proposal.

The relative quiet of the past few days has, to a certain extent, softened the attitude of the prime minister: Sharon has responded positively to U.S. Secretary of State Colin Powell's request that the security contacts with the Palestinians be resumed.

Yesterday it appeared as if the "Zinni escalation" that broke out when the retired U.S. general arrived in the region on his mission had come to an end. Israel and the Palestinians have returned to a routine of local, staged cease-fires, leading some in the U.S. administration to speculate that Zinni's visit and the expectations it begat had pushed up the statistics of terrorist attacks.

The administration is sticking to its guns about the understandings reached between President George W. Bush and Sharon. A message from Washington to Jerusalem yesterday made it clear that the United States views Yasser Arafat as the Palestinian leader, in contrast to the Israeli cabinet's decision that Arafat is "no longer relevant."

The U.S., however, does not want to get involved in a public dispute with Israel, fearing that Arafat would take advantage of the situation and evade responsibility for fighting terrorism. The Americans have also stopped commenting, as they did in the past, about Israeli action in Area A.

Over the past few days, the United States has come under a lot of criticism from its friends in the Arab world who have complained that Washington's response to Arafat's last speech was too tepid. American officials retorted that it was counterproductive to give Arafat compliments because he acted only under pressure and a positive response to his speech would have been perceived by him as a license to stop effective steps against Hamas and Islamic Jihad.

The assessment in Paris and Brussels over the past few days was that the Bush administration is moving toward a "one-sided" foreign policy and that it is willing to waive its covenant and coordination with its European partners. European leaders are resorting to telephone diplomacy in an effort to persuade Sharon to give Arafat another chance. ENDS ISRAEL PALESTINE 201201