Arafat's actions leave U.S., Israel baffled Allies unsure whether conflict will spread or lead to negotiations	JERUSALEM - Despite four decades of watching him and seven years of sitting across from him in negotiations, American and Israeli officials remain baffled by Yasser Arafat.   Their inability to divine the Palestinian leader's intentions leaves the two close allies trapped between fears of an escalating conflict in the West Bank and Gaza Strip that could spread through the Middle East and hopes for a resumption of the peace process.   A U.S. official who has studied Arafat's moves for years summarizes two conflicting theories of what drives the Palestinian leader, at the beginning of a second month of violence that has inflamed the Arab world and weakened American influence.   "One theory is that he wants to go back to the negotiating table in a stronger position, and the second is that he wants to create a state in blood and fire," this official said. "We don't get the sense that we know what's going on. He makes commitments, and he doesn't keep them. So we don't know what exactly his intentions are."   This stems partly from Arafat's close-to-the-chest negotiating style, which sometimes leaves even his advisers guessing. But Palestinians say the Americans' uncertainty also betrays a deafness to Arafat's own words, a lack of understanding of Palestinian political forces and a tendency by Americans and Israelis to rely too much on each other for information.   Ever since President Clinton tried to broker a cease-fire, which collapsed in gunfire just as it was to take effect, Palestinian leaders have sent mixed signals about their desire and ability to control the violence.   Clinton said leaders on both sides would issue calls for an end to the violence, but Arafat's was a vaguely worded phrase attributed to an unnamed "official source."   It merely promised a Palestinian commitment to "calming the situation."   At the same time, leaders of Arafat's Fatah movement have said the uprising will last until the Israeli occupation ends and Palestinians achieve independence. Orders to stop firing seem to have a shelf life of just hours.   The Israeli military suggests that Arafat not only allowed the riots to start but wants the violence to continue. "This was something we expected to come from Arafat in a premeditated way, [but] we did not predict the timing," a defense official said, calling the provocative visit of Ariel Sharon to the Temple Mount in Jerusalem's Old City a "manufactured excuse" for violence.   Analysts Yigal Carmon and Yotam Feldner of the Middle East Media and Research Institute, both of whom have backgrounds in Israeli military intelligence, conclude that the Palestinians want to "create a new reality on the ground that will change the political-diplomatic situation." That is, that Palestinians believe they could more readily declare existence of a Palestinian state after winning world sympathy for a rising death toll.   Israeli officials have repeatedly voiced alarm over the Palestinians' release of Hamas and Islamic Jihad terrorists from prison and Arafat's willingness to involve the two opposition groups in planning sessions. After Thursday's suicide bombing in Gaza, officials warned Israelis that more terror attacks could be in store.   Yet there are hints that Arafat is keeping a lid on some of the worst excesses even if he is unwilling or unable to put an end to the violence.   After a fierce battle outside Nablus involving Fatah gunmen, Israeli soldiers and Jewish settlers, Arafat bowed to a request from Central Intelligence Agency Director George Tenet to allow Israelis to rescue the wounded, along with trapped settlers and their children.   Thursday's suicide bombing was aimed not at Israeli civilians but at a military target, and occurred not in Israel itself but in Gaza, an area many Israelis are prepared to give up.   Faced with these mixed signals, Israeli Prime Minister Ehud Barak has wavered in his drive to team up with Likud Party leader Ariel Sharon. Barak was quoted Friday as saying he would not lead a "war-mongering" government.   "Like most of us, Prime Minister Ehud Barak hasn't a clue what is going to happen," columnist Hemi Shalev wrote Friday in the tabloid Ma'ariv.   "For a week he has been fixated on a national emergency government with Ariel Sharon, but for the time being nothing has come of that. He was sure that we had gotten on a track of certain clashes and confrontations with the Palestinians, but even this, as of press time, has not happened. He is waiting, like everyone, to see what each day will bring."   If Israeli and American officials can't gauge the Palestinians' attitude now, it's not the first time. The Camp David summit in July failed because of misjudgments between Americans and Israelis, on one side, and Americans and Palestinians on the other.   U.S. officials came away stunned by the concessions Barak was prepared to make for peace and mystified by Arafat's rejection of them.   Barak was not only prepared to share East Jerusalem and the Old City and allow Arafat to be custodian of its Muslim shrines, but the Israeli leader would inevitably have traded some territory as part of a final settlement.   Americans call the current Palestinian uprising the "5 percent intifada" and wonder why so many have to die for so little territory. And they are perplexed by Palestinians' refusal to accept that the Temple Mount, or Noble Sanctuary, is of immense importance to the Jewish people.   But Palestinians left Camp David with the bitter conclusion that Israelis and Americans just didn't get it.   Arafat made a historic concession in 1988 by giving up claims to all of what had been Palestine before 1948, and agreed to accept just 22 percent, his supporters say. In Palestinian eyes, Israel has striven to tighten its hold on Palestinian territory by expanding Jewish settlements and building new roads, rather than accept Arafat's compromise.   As for Jerusalem, Palestinians viewed Barak's plan to divide East Jerusalem as unworkable and fraught with danger.   They say Israel's demand for ultimate sovereignty over the Temple Mount - and the apparent U.S. acceptance of it - actually represented a step backward, for the United States had not previously recognized Israeli sovereignty over the area.   If violence erupted, it's not as though Americans weren't warned, they add.   Akram Hanieh, editor of the Al-Ayyam newspaper in Ramallah and a Camp David participant, recounts that in one of the meetings, Arafat said the Israeli position on Jerusalem "will set off massive fires in the region."   "Do you want me to throw the region into an age of new religious conflict?" Arafat asked.   Before Sharon's fateful visit to the Temple Mount on Sept. 28, Arafat urged Barak to prevent it, a close Arafat adviser says. Palestinian negotiators in Washington made the same case to U.S. officials and acting Israeli Foreign Minister Shlomo Ben Ami.   Arafat now risks being engulfed in the flames himself.    Carmi Gillon, former head of Israel's domestic secret police and now director of Peres Peace Center, said, "There is still no doubt that Arafat is number one. But it's a legend that he just says a word and everyone will obey."   Robert Pelletreau, who as U.S. ambassador to Tunisia was the first American diplomat to hold publicly acknowledged meetings with Arafat, says the violence is much greater than the provocation seems to warrant.   The reason, he says, is that the "whole package" presented at Camp David fell so short of the Palestinian vision. That it would be a final settlement, with no more land to be gained, was an outcome Arafat had not prepared his public to expect.   The Arafat move most feared by Americans is a unilateral declaration of independence, which could prompt Israel to annex and fight for territory it wants to keep.   This "is not his preference," Pelletreau said, but Arafat may be driven into it. The Palestinian leader knows that a negotiated solution would place a Palestinian state on a firmer foundation, "but his priority is to maintain his own leadership and control."   One step has been his bringing Hamas and Islamic Jihad into consultations with Fatah, Pelletreau said. The alternative is grim: Hezbollah banners - promoting the Iran-backed Lebanese guerrilla group - are in the West Bank city of Nablus. And Hezbollah's television station, exhorting Palestinians to armed struggle, draws a growing audience in Gaza.   "It's not only in the hands of Arafat," said Ziad Abu Zayyad, a Palestinian legislator and Cabinet minister. "I believe Arafat is totally committed to peace through negotiations, but our people are not Jesus Christ. They can't continue suffering indefinitely."   As the fires rage, Arafat himself may be a bit baffled, Pelletreau said.   "Arafat usually is very astute at reading his own public, but he may have underestimated the degree of dissatisfaction with the whole negotiating process he was leading."