Dozens killed, hundreds shot, as Middle East hopes are buried in the battle of Joseph's Tomb

Gun battles between Israeli troops and Palestinian policemen, and between settlers and civilians, spread like a forest fire across the West Bank and Gaza Strip yesterday, bringing the Middle East peace process to the brink of collapse.

By nightfall, at least 37 Palestinians and 11 Israeli soldiers were dead. More than 250 Palestinians, 55 Israeli soldiers and three civilians wounded. The dead soldiers included four officers (a major, two captains and one lieutenant) as well as five staff sergeants or sergeants. The civilian wounded included a television cameraman.

Six of those killed and seven of the wounded were shot defending Joseph's Tomb, the traditional burial place of the biblical figure, in Nablus. An army spokesman said last night that the siege had been lifted, but that a small garrison remained in place to protect Israeli rights there under the Oslo peace agreement. It was altogether the bloodiest day since the peace process began in 1993. "It's a picture of war," Israel's armed forces radio said.

The UN Security Council last night agreed to meet in formal session today in spite of objections by the United States and Israel. President Bill Clinton offered to intervene personally to bring a halt to the violence, sparked by Israel's decision to open a new entrance to an ancient tunnel near the holy sites in the old city of Jerusalem. Attempts were being made last night to broker an emergency meeting between Benjamin Netanyahu and Yasser Arafat in President Hosni Mubarak's Cairo office this morning.

An official in the Israeli Prime Minister's bureau said Cairo was one option being considered, and Mr Netanyahu had spoken by telephone to President Mubarak. The Israeli Cabinet was still in session after four hours.

After two days of bloodshed, it looked extremely difficult to salvage the peace process, however much both sides may want to. The feeling was growing that both Mr Arafat and Mr Netanyahu had lost control of the situation. Senior Palestinian officials admitted that some of their police units were ignoring orders to cease fire, broadcast throughout the evening in Mr Arafat's name. Co-operation between the security services was a cornerstone of the Oslo peace agreements, and there was despair at the chances of such co-operation being restored after they had been killing and maiming each other. Earlier, Mr Netanyahu flew home after cutting short an official visit to Germany. He spoke to Mr Arafat from hisplane. Mr Netanyahu asked for an urgent meeting, but Mr Arafat declined to give him an immediate answer. The Prime Minister told Mr Arafat it was important the two "look one another in the eye so that each knows what the other's intentions are," one Israeli said. Mr Arafat reportedly replied that he saw no point in meeting unless Israel came up with proposals for implementing the peace agreements, which have been marking time since Mr Netanyahu came to power in June.

Both the Prime Minister and his Defence Minister, Yitzhak Mordechai, had spoken earlier to Mr Arafat, urging him to stop Palestinian police firing on their Israeli counterparts.

A senior Arafat aide put the blame on Israel, saying the violence was triggered by Israeli troops using live bullets. "They are killing the peace process," the Palestinian Cabinet secretary, Ahmed Abdel Rahman, said. He demanded that Israel close the tunnel and fulfil the promises it had made in the peace agreements. Early today there were reports that Mr Arafat was making closure of the tunnel a condition for meeting the Israeli prime minister.

Israeli helicopters and armoured personnel carriers were deployed last night to evacuate about 40 soldiers and settlers besieged in Joseph's Tomb, a militant Jewish religious enclave in the autonomous West Bank town of Nablus. The shrine was reported to be burning.

Two Israeli soldiers were shot dead. Palestinian rioters set fire to three Israeli army jeeps trying to evacuate the site. An official at Palestinian headquarters in Nablus said they had imposed a curfew in an effort to get the Israelis out peacefully.

The Israeli army declared a state of emergency and tried to seal off West Bank towns under Palestinian self-rule. The day's worst violence was reported from two isolated Jewish settlements in the Gaza Strip - Netzarim and Kfar Darom - and from Nablus. Exchanges of fire were also reported from Ramallah, where seven Palestinians were shot dead on Wed- nesday, and in Bethlehem, Hebron and East Jerusalem.

Hundreds of slogan-shouting Palestinians marched on the two Gaza settlements shortly after dawn. The soldiers and paramilitary border police guarding them came under a barrage of stones and bottles. The mob then turned its wrath on civilian settlers over their perimeter fences.

According to Israeli reports, the soldiers at first responded with teargas and rubber bullets, then fired warning shots in the air with live ammunition. Palestinian policemen fired back and the confrontations deteriorated into gun battles between the two uniformed forces, which are supposed to co- operate in the enforcement of the interim peace agreements. Many of the soldiers and police shooting at each other would have been engaged in joint patrols up to two days ago,

In Kfar Darom, Michal Sheinbaum, who was sheltering with her children while her husband joined the fighting outside, told Israel Radio: "The shooting got worse and worse. The Arabs were standing by the gates. We're here by a miracle. All we can do is pray to God. Whatever will be, will be."

Last night, President Clinton appealed to "both sides to end this violence". Asked if Israelis should re-seal the tunnel whose opening sparked the violence, Mr Clinton came close to a direct criticism of Israel's actions. "They need to discuss these matters between them," he said, "and they need to ask themselves what can we do to avoid unnecessarily provocative actions."

Mr Netanyahu's decision to open the Jerusalem tunnel, despite the reservations of his security advisers, is coming under increasing criticism in the Israeli media. Some commentators are asking whether he can get back into negotiations without closing the tunnel, however much prestige that would cost.