CLINTON CHIDES ISRAEL DURING ARAFAT MEETING.

Byline: The New York Times

With Yasser Arafat at his side, President Clinton delivered a mild, but relatively rare rebuke of Israel on Monday, saying the Israeli government's decision last week to allow construction of thousands of new homes for Jews in East Jerusalem had created mistrust and could damage the peace effort in the region.

The president made his remarks as he began an extended meeting Monday morning with Arafat, the Palestinian leader, who raised the subject of the new Jewish housing in a tone that Clinton's spokesman, Mike McCurry, later described as ``very concerned and emotional.''

Monday's meeting was the sixth between Clinton and Arafat, but it had added significance as the first meeting held directly between the two men without the presence of other Middle East leaders, or, as McCurry put it, ``in the context of some other gathering.''

Arafat's meeting at the White House came on a day when Palestinians in the West Bank and Gaza Strip, as well as in East Jerusalem, took part in a general strike to protest the Israeli decision to build the first of 2,500 of 6,500 homes on a hill in East Jerusalem known in Arabic as Jabal Abu Ghneim and in Hebrew as Har Homa.

Sitting beside Arafat in the Oval Office, Clinton said it was important for the Israelis and Palestinians ``to be building confidence and working together'' as the peace talks move forward and then lent his voice to the chorus of international criticism of the new housing.

``I would prefer the decision not have been made, because I don't think it builds confidence,'' Clinton said. ``I think it builds mistrust, and I wish that it had not been made.''

In meetings with Arafat and in public remarks, the White House seemed eager to lend its support and encouragement to the Palestinian leader - in part to shore up the peace effort, which has lagged again since the brief burst of enthusiasm after the agreement in January that led to the withdrawal of Israeli forces from Hebron.

Arafat went on to meet separately with Secretary of State Madeleine Albright, as well as Treasury Secretary Robert Rubin and Brian Atwood, the director of the agency for international development. At lunch at the State Department, the Americans and Arafat's delegations held lengthy discussions on increasing investments in the Palestinian territories.