U.N. envoy says Mideast war is possible

JERUSALEM (Reuters) -- U.N. Middle East special envoy Terje Roed-Larsen said on Tuesday almost 10 weeks of clashes between Israeli soldiers and Palestinians could rapidly deteriorate into a regional war.

He urged Israel to lift a blockade of Palestinian areas and called for Palestinian and Israeli leaders to quickly revive the peace process suspended by Israeli Prime Minister Ehud Barak last month because of the Palestinian uprising.

MESSAGE BOARD Mideast peace     ALSO 2 Palestinians reported killed

"The situation as it is now is not tenable. It may continue the way it is right now for a few more weeks...It could deteriorate sharply, dramatically and tragically, which may produce regional spillovers so we will face a regional war," Larsen told Reuters in an interview.

"The only way to save the situation is for the parties to return quickly to the negotiating table and make the painful compromises they have to," he said.

Almost 300 people, mostly Palestinians, have been killed in more than two months of Israeli-Palestinian clashes.

Palestinians say they cannot return to the negotiating table when they are threatened by tanks and combat helicopters. Israel says it will not submit to violence and wants the Palestinians to restore calm before reopening the talks.

Larsen has good relations with Israelis and Palestinians and has often mediated in times of conflict.

He said the situation was deteriorating daily, especially as a result of Israeli blockades of Palestinian areas which have prevented many Palestinians from reaching jobs in Israel itself.

Israel imposed the closure in October, citing security reasons for fear of guerrilla attacks. Palestinians say it is collective punishment.

"We need a massive opening up of the Palestinian territories and we need it very quickly because there will be a lasting effect on what has been happening already," Larsen said.

"What was achieved in progress as concerns the living conditions of the Palestinians over the last three years has been completely destroyed over the last two months. The losses alone to the PA (Palestinian Authority) are $500 million and there are daily losses of $8 million," he said.

He said the Palestinian Authority was now in a situation where it could not pay public sector employees.

He said the Palestinian leadership had managed in the last three years to reduce unemployment from 30 percent to 12 percent in the West Bank and Gaza Strip, but unemployment had risen to 40 percent in the last two months as a result of the closure.

More than one million people, or about one third of the three million population in the Palestinian territories, have been directly and negatively affected by the closure, he added.

About one in three people were living below the poverty line, surviving on $2 or less a day.

"This is completely counterproductive to the security situation because what is happening now is that this policy is fueling anger and is the major instrument for the radicalization of the population," he said.

"The risk here is that one produces through these policies a new generation of Palestinians where hatred, anger and resentment will stay for decades. This in the longer and shorter term is the greatest threat to the security situation."

Larsen, a Norwegian who initiated and hosted the Oslo secret talks between the Palestine Liberation Organization and Israel which produced interim accords in 1993, said the Oslo process of gradual steps was the only way to achieve a lasting peace.

"The Oslo peace process is as for now completely frozen both on the political and social and economic arenas," Larsen said.

"It is possible to repair the situation and bring the Oslo process back by reviving talks. The most important steps on the economic front rest with the Israeli government."

He said the sides must take "a leap of faith and it requires real courage. Real courage now is not to shoot but to talk."

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