JERUSALEM, Aug. 14 (JTA) — Prime Minister Ariel Sharon’s policy of “no talks under fire” increasingly is coming under fire within Israel.

Initially, Sharon’s refusal to hold diplomatic talks with the Palestinian Authority until Palestinian violence against Israel ceases completely was supported by Israelis virtually across the board.

Increasingly, however, it is being criticized by Israeli opinion-makers, who cite examples of other nations that simultaneously fought and talked with their enemies.

Five months into Sharon’s term of office, pundits note that the prime minister has restored neither peace nor security to Israel — and they are wondering if it is time to change tactics.

This week, Sharon finally budged. Amid talk that a frustrated Foreign Minister Shimon Peres was considering leaving the government, Sharon agreed to let Peres meet with the Palestinian leadership to discuss a cease-fire.

However, Sharon stipulated that a senior army figure must be present, ensuring that Peres does not negotiate anything of broader diplomatic significance.

At the same time, however, Sharon was assiduously courting both the settler-oriented National Religious Party and the moderate Center Party. In fact, just as rumors flourished that Peres might pull Labor out of the government, stories began circulating in the Israeli media that Sharon would offer the Foreign Ministry to Center Party leader Dan Meridor as an incentive to join the government.

In any case, Sharon’s new-found diplomatic flexibility has had little practical effect, as the Palestinians now refuse to talk to Israel.

Palestinian officials said this week that as long as Israel maintains its “occupation” of Orient House, the Palestinians’ unofficial headquarters in Jerusalem, there is nothing for the two sides to discuss.

The Security Cabinet ordered Israeli security forces to seize Orient House and Palestinian Authority offices in Abu Dis, located just outside the Jerusalem city limits, after a Palestinian suicide bomber blew himself up Aug. 9 in a Jerusalem pizzeria, killing 15 people, many of them children.

Along with two other Labor ministers, Peres opposed the largely symbolic seizure of Orient House, saying that it would set back any hope of resuming diplomatic contacts with the Palestinians.

But the Cabinet majority — including Defense Minister Benjamin Ben- Eliezer, also of Labor — preferred this form of reprisal to a large-scale military action that could result in heavy casualties.

Sharon allowed Peres to launch the new diplomatic overture after a wave of unrest within Labor ranks appeared to threaten the stability of the national unity government.

Last week, interim Labor leader Peres found himself repeatedly challenged by party loyalists to demonstrate how Labor’s presence in the Cabinet was influencing Sharon’s policies.

The two contenders for Labor leadership in September 4 primaries — Ben-Eliezer and Knesset Speaker Avraham Burg — both say they would stay in the unity government. However, some political observers believe that if front- runner Burg is chosen, he will move to end Labor’s union with Likud.

Prominent party doves like Yossi Beilin long have argued that Labor is damaging itself by staying in Sharon’s government.

The prime minister’s mantra of “no talks under fire” has become one of the main irritants to Laborites.

Sources close to Peres argue that now, since Sharon has given him the go-ahead to hold cease-fire talks, the source of controversy has evaporated.

Granted, Sharon’s permission was only for talks toward a cease-fire, not political negotiations on wider-ranging issues.

In practice, the sources say, it is impossible to fully separate military and political issues. They also hope that a cease-fire will produce immediate progress on the recommendations of a U.S.-led panel, known as the Mitchell Commission, to bring the two sides back to peace talks.

The sources say that Peres’ influence in Sharon’s smaller, inner Cabinet was crucial in convincing a reluctant premier to accept the Mitchell Commission recommendations. They include an Israeli military redeployment, a freeze on Israeli settlement construction in the West Bank and Gaza Strip and further confidence-building measures from each side.

Similarly, they say, Peres’ influence prevented a huge military escalation in the wake of the June 1 Palestinian terror bombing outside a Tel Aviv disco that killed 21 Israelis and wounded more than 100.

Right now, however, Peres’ influence is more hypothetical than real, as no progress has been made with the Palestinians on the diplomatic front.

There are no signs that the Palestinians will respond to the shift on the Israeli side. Instead, Palestinian officials appear more concerned with voicing outrage over the seizure of Orient House.

Behind the scenes, though, Israeli officials who have maintained informal ties with the Palestinian leadership are redoubling their efforts to bring Palestinian Authority President Yasser Arafat’s top men back to the table.

The Israeli daily Ha’aretz reported that Peres met recently with former Justice Minister Yossi Beilin and Ron Pundak, architects of the original Oslo peace accords. The pair are said to be operating an “alternative Foreign Ministry” from the Tel Aviv office of the Economic Cooperation Foundation.

Beilin is trying to organize a “Second Madrid Conference” for the end of October, the 10th anniversary of the international conference that followed the Gulf War and marked the beginning of open peace talks between the Arab states and Israel, the paper said.

Beilin reportedly visited Cairo this week in an attempt to advance the idea. He already has a number of backers in the international community, including U.N. Secretary-General Kofi Annan and European Union foreign policy chief Javier Solana.

Other Israelis who favor renewing negotiations argue that if the Palestinian Authority demonstrates a “100 percent effort” against terrorism — a phrase reiterated this week by President Bush — then international pressure would force Israel to ease its restrictions on Palestinians in the West Bank and Gaza Strip.

This, they say, would move the two sides back from the abyss and toward a full diplomatic engagement.

Informed Israeli sources say that Sharon knows this would be the inevitable price if the Palestinians finally “bite.”

Sharon likely would face resistance from parts of his own constituency, who believe that Arafat has discredited himself as a negotiating partner and that Israel should seek to deter Palestinian violence through harsh military responses rather than the promise of political gains.

However, the best reading of Sharon appears to be the he wants to end the spiral of violence, and is prepared to take political risks to do so.

So far, however, the Palestinians are not “biting.” That was the unfortunate political reality as another week of blood and suffering drew to a close.

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