WHEN Israelis and Palestinians drafted principles to guide their historic peace negotiations, they agreed on a crucial point of strategy: Resolve all other differences and turn last to the contentious issue of Jerusalem.
Now, under pressure of US presidential politics, the last has become first.
Backers of House and Senate bills to compel President Clinton to move the United States Embassy from Tel Aviv to Jerusalem say the measure is needed to buttress Israel's claim to Jerusalem as its permanent and undivided capital.
''The search for peace can only be hindered by raising utterly unrealistic hopes about the future status of Jerusalem among the Palestinians,'' says Sen. Daniel Moynihan (D) of New York.
But critics, led by the Clinton administration, say the US role as honest broker in the peace process will be undermined if it takes sides on an issue that it has repeatedly said should be settled through negotiation.
''Given the fragility of the negotiations, it's hard to see that this wouldn't weaken those on the Arab side who say that the peace process is the best way to proceed,'' says William Quandt, a participant in the Camp David peace negotiations who now teaches at the University of Virginia in Charlottesville. ''It hands the Islamic opposition [to the peace process] a wonderful issue.''
Since it recognized Israel in 1948, the US has maintained its embassy in Tel Aviv to avoid being embroiled in the controversy between Arabs and Jews over control of Jerusalem. The US has not recognized Israel's 1981 annexation of the eastern, mostly Arab half of the city and has insisted that the future status of Jerusalem is a matter that should be decided through negotiation.
Under the proposed legislation, the State Department would have to break ground for the new embassy by the end of 1996.
The facility would have to be open for business by May 31, 1999.
The bills, sponsored by Senate and House Republican leaders Bob Dole and Newt Gingrich, call for withholding half of the State Department's construction funds in fiscal years 1997 and 1999 unless those deadlines are met.
Although the bills are warmly supported by Israel's opposition Likud Party, they have put the governing Labor Party in a tight spot. Few Labor politicians are eager to say publicly that the embassy should not be moved, since it is an article of faith with all Israelis that Jerusalem is the country's eternal and indivisible capital.
But Labor officials, who have invested huge amounts of political capital in the peace process, know that it could be undone if the Jerusalem issue is forced prematurely.
Congressional pressure to relocate the embassy has been resisted by a string of US presidents including Mr. Clinton and Ronald Reagan, who, as presidential candidates, both advocated moving it to Jerusalem.
Supporters of the Dole/Gingrich measures say that not having the US embassy in the capital city is an aberration.
''There is only one nation in this world where the United States mission is not in the capital city, and that is Israel,'' says Sen. Jesse Helms (R) of North Carolina, chairman of the Senate Foreign Relations Committee.
Critics say the difference is that Jerusalem has not been formally recognized as the capital by the international community.
Although the US has long had close ties to Israel, it has maintained a degree of confidence among Arabs because of three long-held positions: that Jewish settlements in the occupied West Bank and Gaza Strip are illegal or, at least, a hindrance to peace; that the final status of Jerusalem should be the subject of negotiation; and that UN resolutions passed in 1967 and 1972 require Israel to give up land in return for peace.
But with the US position on settlements less firm and with its stance on Jerusalem now under assault by Congress, it risks losing standing as an impartial mediator, many diplomatic analysts believe.
''The US's credibility as negotiator has been eroded because its positions have eroded,'' says Dr. Quandt.
The move to relocate the embassy is testament to the eagerness with which both parties are courting the American Jewish vote in the run-up to the 1996 presidential elections.
Senator Dole, a presidential candidate, announced the Jerusalem bill to a standing ovation at the annual meeting of the American-Israeli Public Affairs Committee (AIPAC), the leading arm of the pro-Israel lobby in the US.
Days earlier, Clinton made his own appeal for support before the World Jewish Congress, announcing a full US trade embargo on Iran, Israel's most feared enemy in the Middle East.
Jerusalem is the object of intense Jewish devotion The city was the capital of the ancient Israelite kingdom and site of the two great Jewish temples, one built by Solomon and a later one built by Herod. The Wailing Wall, part of the retaining wall that buttresses the temple mount, is the holiest site in Judaism.
Jerusalem is also sacred to Muslims, the third holiest place in Islam after Mecca and Medina, in Saudi Arabia. It is from the same temple mount that the Prophet Muhammad is said to have departed for a day's visit to heaven.
The issue of Jerusalem was also forced to the surface recently when Israel announced it would confiscate land in Arab areas of the city to build housing for Jews. The seizure, the first since the peace process began, met with angry opposition from Palestinians and was judged detrimental to the peace process by the Clinton administration.
Short embassy row
Only two countries, Costa Rica and El Salvador, have their embassies in Jerusalem, where Israel's parliament, prime minister's office, and most government ministries are located.
Under the agreement that Israel and the PLO signed at the White House in 1993, Jerusalem was not to be discussed before 1996. The agreement allows three years for resolution of the issue.
If the Jerusalem bill is passed, Clinton is expected to veto or to drag out its implementation.