On Friday, the Israeli Cabinet voted to restore large subsidies, including tax concessions, for existing Jewish settlements in the West Bank.

It appeared to restore subsidies and jobs that had been cut under Mr. Bucaram.

Their first step in the budget review was to meet a Dec. 3 deadline for additions to the budget by restoring three bus lines and subsidies to two private bus companies that Mr. O'Rourke had sought to eliminate, for an anticipated saving of $250,000.

The Israeli Government decided today to restore large subsidies for the Jewish settlements in the West Bank, drawing warnings of confrontation from the Palestinians and fears from politicians on both sides that the drive to peace was crumbling.

He responded to the recent terrorist outrage, the drive-by murder of two Israeli settlers, by announcing that he would restore financial subsidies for the settlements.

ISRAEL TO EXPAND SETTLEMENTS Israel will restore large subsidies for Jewish settlements in the West Bank, raising fears that the drive for peace is crumbling.

In fact, that is what the I.M.F. did when the Asian crisis started in Thailand and Indonesia, but within months it backed away, restoring subsidies for fuel and rice to contain widening street protests.

"The Israelis have made some moves, and it's time for the Palestinians to reciprocate," Mr. Christopher said, trying to balance strong American criticism this week of an Israeli Government decision to restore large subsidies and tax concessions for existing Jewish settlements in the West Bank.

The Government recently lifted a freeze imposed by the previous administration on the sale of 3,000 apartments in settlements, and the Cabinet is expected to act soon to restore canceled subsidies and loans for purchase of homes in the West Bank and the Gaza Strip.