That prospect terrifies many Israelis. Last Thursday’s suicide bombing seemed to portend a frightening new turn in the violence that has killed 133 Palestinians and eight Israeli Jews since late September. It followed several days of uneasy calm across the West Bank and Gaza Strip, which some attributed to rain and cold temperatures–and others to exhaustion. On Friday street battles flared up again, and four Palestinians were shot dead by Israeli troops. Islamic Jihad–which took responsibility for Thursday’s bombing–and other militant groups have vowed to attack targets inside Israel. Prime Minister Ehud Barak is trying to form a coalition with the hawkish Likud leader Ariel Sharon, a move that would almost surely scuttle any hope of a peace deal. “There’s still a risk of escalation,” says Israel’s Deputy Defense Minister Ephraim Sneh–and both sides seem willing to take it.

Barak’s political footing is shaky. The Israeli leader is so unpopular on the streets and in Parliament that lawmakers next week could vote on a bill for an election as early as March. Desperate to shore up Likud support, Barak has lavishly praised Sharon, even touting the old Likud general’s contributions to the peace process. Barak’s praise annoys Palestinians, who view Sharon’s visit to the Temple Mount last month as the match that lit the fire in the West Bank and Gaza. Sharon’s price for saving Barak’s government: a veto over major initiatives, like a return to the bargaining table.

Dragging Palestinians back to the talks won’t be any easier. The Palestinian Parliament set tough conditions for resuming peace talks, including the stationing of U.N. peacekeepers in the West Bank and Gaza–a nonstarter for Israelis. Palestinians also want to limit U.S. influence by bringing in mediators from Russia, the European Union and the United Nations, which are viewed as more sympathetic to Palestinian demands.

With no parley in sight, the two sides inch ever closer to full-scale conflict. In a worst-case scenario, Yasir Arafat would declare a Palestinian state in mid-November and order troops to grab areas of the West Bank and Gaza still under Israeli control. Such a move would almost certainly prompt Israel to react with force. The mourners at the funeral of bicycle bomber Nabil Arair are ready. More than 1,000 Gazans walked behind his coffin last Friday, chanting “Death to Israel.” At the grave, a relative read a letter Arair wrote before embarking on his suicide mission, in which he called on his comrades to continue their “march” to Jerusalem. If his call is heeded, that march will be long and bloody.