JERUSALEM (AP) _ Israel's covert campaign to settle accounts with Palestinian militants who have spilled Jewish blood has ignited unrest and turned young Palestinians increasingly against the PLO-Israel accord.

Tuesday's clashes in the Gaza Strip, which resulted in 65 Palestinians wounded by army gunfire and the death of a 16-year-old Palestinian boy, followed the army's killing of Ahmed Abu Rish, a Fatah Hawk who had turned himself in and publicly laid down his arms.

While the army called Abu Rish's death a mistake, Israeli leaders have vowed to pursue Palestinian guerrillas who have been responsible for killing or wounding Israelis. Their campaign extends even to members of PLO chairman Yasser Arafat's mainstream Fatah movement, which supports the peace accord.

''We will continue to pursue and capture ... all terrorists and fugitives whose hands are covered in blood,'' said Binyamin Ben-Eliezer, the housing minister and former head of the West Bank military government.

''On this matter, we will not give in,'' he told Israel army radio on Tuesday, adding it didn't matter if the fugitives were loyal to Arafat or to the Muslim fundamentalist Hamas which opposes the peace process.

The task of arresting fugitives is carried out by undercover Israeli units named ''Cherry'' and ''Samson,'' whose members often disguise themselves as Arabs. Palestinians claim the units carry out intentional killings, but the army denies such allegations.

Fatah Hawks, who number about 550 armed members, serve as the enforcement arm of Fatah, Arafat's own faction. They are regarded as heroes for their David-and-Goliath struggle against the Israeli army.

They cut daring figures posing with guns drawn and faces masked with checkered kaffiyehs and, until this week's clashes, had been turning themselves over to Israeli authorities and publicly laying down their weapons.

Israel has placed itself in the position of hunting down some of the very people who are expected to form the core of Arafat's security forces after Israel's pullout, scheduled to begin Dec. 13 and be complete by April 13.

After the recent clashes, Fatah Hawks are calling for a resumption of armed struggle and some even for an end to peace talks.

''We will fight to the last drop of our blood,'' said Hani Salem, 19, who is wanted for stabbing an Israeli bus driver in Gaza earlier this year.

He is one of 45 Fatah Hawks who Palestinian sources say remain outside the amnesty offered by Israel to Fatah fighters. So do scores of other militants who belong to Hamas, Islamic Jihad and the Popular Front - groups that oppose the peace process.

Army officials said Abu Rish was traveling in a car with armed men in Khan Yunis Sunday night when the Samson unit encountered them. Abu Rish died in an exchange of fire.

Lt. Gen. Ehud Barak, the armed forces chief of staff, said on army radio that Abu Rish's death was an accident. ''Regrettably, Abu Rish was hit, which was not intentional.''

To Palestinians, however, Abu Rish's death was an act of betrayal.

''The Israelis have no right to kill us. We respected Arafat's orders to stop the violence, but the Israelis did not keep their promises,'' said Bassam, 28, a Fatah Hawk who spoke to reporters in Khan Yunis.

A previous eruption of street battles on Nov. 25 was set off by the killing of Imad Aqal, leader of the Hamas movement's military wing. Thirty-four Palestinians were wounded by army gunfire in that outburst.

After the killings of both Abu Rish and Aqal, the Fatah Hawks and the rival rejectionist groups made a show of solidarity - a sign that the younger generation is capable of making decisions independent of PLO headquarters.

The possibility of a youth rebellion is a reflection of the increasing frustration felt because Israeli soldiers have not stopped making arrests and more than 10,500 Palestinians remain in Israeli jails.

''The young leaders have more control over the streets than the PLO outside,'' warned Fawaz Abu Sitte, a Palestinian economist and intellectual in Gaza.