JERUSALEM, March 18 (JTA) — The Israeli-Palestinian peace process was teetering on the brink of its gravest crisis yet, as Israeli bulldozers began work this week at Har Homa. For Prime Minister Benjamin Netanyahu, the decision to begin work on a new Jewish neighborhood in southeastern Jerusalem was a test of the credibility of his government. The Israeli move came Tuesday amid mounting Arab anger and worldwide opposition to the plan to build 6,500 housing units on the rocky hill. Diplomats this week were toiling to forestall any outbreak of violence and to put the Israeli-Palestinian peace process back on course. As he has done repeatedly in recent days, the premier defended his Har Homa decision, after the Cabinet voted unanimously last Friday to give the project the go-ahead. “There is never a good timing to build in Jerusalem, because there is always opposition,”” Netanyahu told reporters accompanying him on a visit to the Negev, soon after the work began at Har Homa. “When they say, `Wait for better timing,” they mean, `Don”t build, not ever.” We intended to build, we promised to build and we are building.”” Because of his vow to build in Jerusalem, hard-line coalition members backed down from their threat to join with the Knesset opposition in a no-confidence motion, which was defeated Monday. Meanwhile, both Israelis and Palestinians readied themselves for a potentially explosive confrontation. When construction began Tuesday, Palestinian protesters engaged in shoving matches with Israeli soldiers at the site, but there were no serious outbreaks of violence. In Bethlehem, in the West Bank, Palestinian teen-agers burned tires, blocked roads with trash containers and taunted Israeli soldiers. Earlier in the day, the premier convened key ministers and security chiefs to assess the possibility of a violent Palestinian reaction. Officials warned after the meeting that Israel would hold Palestinian Authority leader Yasser Arafat “personally responsible”” for any violence or terrorism. The Palestinians, for their part, angrily denied Israeli media reports that Arafat had given the nod to Palestinian opposition groups to renew violent attacks against Israel. Underscoring his avowed commitment to peace, Arafat met Tuesday with Yossi Sarid, leader of the dovish Meretz Party, and with a delegation from the left-wing organization “A Whole Generation Demands Peace,”” which is led by Yuval Rabin, the son of slain Prime Minister Yitzhak Rabin. Sarid said after the meeting that Arafat was disturbed by the decision to proceed with the construction, but that he was calling for restraint. The Israeli moves at Har Homa came amid behind-the-scenes efforts involving American, European and Jordanian diplomats, who sought to put together a package of Israeli concessions to the Palestinians that could, it was hoped, head off a complete breakdown of the peace process. The diplomatic efforts were given a significant boost, and a little more time to succeed, by Jordanian King Hussein”s condolence visit to Israel on Sunday, when he paid his respects to the families of seven schoolgirls killed last week by a Jordanian soldier. His emotional visit also provided a dramatic illustration of what real peace can mean — and of how much stands to be lost if the peace process is derailed. The royal visit, however, did not defuse the Har Homa crisis. Netanyahu, in fact, reiterated to the world at a joint news conference with the king that the building plans would go ahead. But when the bulldozers moved in Tuesday, the diplomatic horizon became cloudy. U.S. diplomats were working during and after Hussein”s visit, to find ways to assuage Palestinian anger and restore Palestinian honor even as Israel proceeded with Har Homa. One measure was announced by Netanyahu himself Sunday night, and the details of it were quickly negotiated Monday. Arafat, his family and his close entourage will be able to fly in and out of the Palestinian airport at Dahaniyeh in southern Gaza without Israeli security supervision. But Israeli guards, working at the airport alongside Palestinians, will be entitled to examine other people aboard Arafat”s jet. Negotiations continued on a general opening of the airport to civilian traffic — subject to Israel”s insistence on exercising security control over passengers. Among other items under discussion as possible components of a package that could restore the peace process to health despite Har Homa: * Progress on a Palestinian seaport in Gaza. Here, too, Israeli security concerns have slowed negotiations so far; * Progress on creating a “safe passage”” for Palestinians traveling between Gaza and the West Bank, a step provided for under the Israeli-Palestinian accords, but not yet implemented; * A reopening of Israel”s recent decision on the first redeployment from rural areas in the West Bank. Israel said it would withdraw from 2 percent of the West Bank that is now under full Israeli control and transfer another 7 percent from areas under joint control to full Palestinian civilian and security control; * An Israeli undertaking that the scale of the two subsequent redeployments scheduled to be completed by mid-1998 will be determined after consultations with the Palestinians. Israel is said to have proposed a construction program for Palestinian residents of eastern Jerusalem, and also has pledged to earmark funds for infrastructure work in the eastern part of the city. These proposals are seen as attempts to “sweeten the pill”” of Har Homa. However, whether Palestinians would be satisfied by these gestures remains in doubt, as does the likelihood of getting Israeli and Palestinian negotiators to sit down for the final-status talks. Dr. Ahmed Tibi, Arafat”s Israeli Arab adviser, rejected in a telephone interview any speculation that the Palestinian opposition to Har Homa could be “bought”” by either pleasing the king or offering Arafat”s plane landing rights at the Gaza airport. “Whoever believes so is either a fool or a fool,”” Tibi said. Hussein, despite last week”s tragedy on the Israeli-Jordanian border, appeared to have won back his popularity in Israel. The condolence visit, by all accounts, restored the high esteem reserved for the king, who only days before had profoundly altered his benign image by writing a highly publicized letter in which he angrily warned Netanyahu of the dangers of building at Har Homa. The March 13 killing of the schoolgirls occurred a day after the letter”s publication. Hussein”s visit, however, restored his image as Israel”s closest Arab friend. “You are not just Jordan”s king. You are our king, too. May Allah bless you,”” an elderly relative of Sivan Fatihi, one of the slain girls, told the monarch at the family”s home in Moshav Tslafon. Perhaps he was exaggerating, but not by much. The king”s outpouring of feeling to each of the bereaved families sent a shiver through this tough but troubled land of raw emotions. His kneeling in front of them as they sat on the floor, as mourning rites require, was seen as a quintessential act of humility and contrition. Commentators in the Israeli media, lauding the king, noted that his simple gestures had not belittled his regal bearing. To the contrary, they had enhanced it. Sivan”s father, Yisrael, seemed to speak for many when he urged the king and Netanyahu to work harder together for the cause of peace. Yisrael Fatihi, who has made numerous visits to the Jordanian capital of Amman, promised to return there despite the tragedy that struck his family. The king was visibly moved to hear this declaration, which was made in fluent English.