JERUSALEM (AP) _ Israeli Cabinet ministers assembled around a TV set and watched a video of a Palestinian mob ambushing an Israeli soldier. When the tape stopped, the decision was unanimous: Israel was suspending its West Bank troop withdrawal.

Prime Minister Benjamin Netanyahu said Wednesday's attack, in which the trapped soldier was repeatedly struck in the head, was a result of incitement by the Palestinian Authority against Israel.

``I cannot allow myself to see Israeli citizens being lynched, or about to be lynched by a crazed mob that received incitement from Palestinian officials,'' Netanyahu said in explaining his decision to hold up the land-for-security agreement.

Netanyahu said he would only resume implementation once Palestinian leader Yasser Arafat publicly dropped plans to announce a state in May and accepted Israel's criteria for the release of Palestinian prisoners.

The Palestinians appealed to the United States for help and Arafat said Thursday that Netanyahu is ``violating completely'' the Wye agreement.

U.S. State Department spokesman James Rubin sided with the Palestinians, saying the Wye River peace agreement ``should be implemented as signed.''

The crisis hit just 10 days before President Clinton was to arrive in the region to oversee the next phase of the peace accord.

In mid-December, 5 percent of the West Bank is to be transferred from Israeli control to joint jurisdiction and Israel is to release 250 more Palestinian prisoners.

White House spokesman David Leavy said that despite the crisis, the Clinton trip was still on. A White House advance team was to arrive in the region today.

In Israel, meanwhile, the new confrontation with the Palestinians helped stabilize Netanyahu's shaky coalition.

In response to the Cabinet's decision to suspend implementation of the Wye agreement, hard-line coalition legislators said today they would not support an early elections bill as initially planned.

The legislation was to have come before parliament Monday, but its sponsors said they might delay the vote because they no longer have a majority.

The latest cycle of violence began Wednesday morning when an Arab street cleaner was stabbed to death, apparently by a Jewish extremist, in a mixed Arab-Jewish neighborhood of Jerusalem.

In response, dozens of masked Palestinians blocked roads in traditionally Arab east Jerusalem with burning tires and threw stones at cars. Israeli police fired rubber bullets.

Also Wednesday, students bused to the West Bank town of Ramallah to demonstrate for the release of Palestinian prisoners began stoning a car with Israeli license plates. The car was driven by a man wearing a skullcap and carried an Israeli soldier.

The driver escaped from the moving vehicle and ran, while the soldier was pulled from the car and beaten before he was able to get up and run to safety. The soldier was hospitalized with head injuries.

Early today, a shack in Tel Aviv housing five Palestinian laborers from the Gaza Strip was set on fire, and police said they were investigating whether the arsonists had political motives. The fire was quickly extinguished and the laborers escaped unharmed.

After the attack on the Israeli soldier, Netanyahu convened his security Cabinet and played a videotape of the incident.

Justice Minister Tsahi Hanegbi said the atmosphere in the Cabinet room was very tense during the screening.

``There was a unanimous decision,'' Hanegbi told Israel army radio today. ``We all said to ourselves that we had to stop this quickly because if we do it after we give the territory, we will be shirking our responsibility.''

However, the Palestinian Authority blamed Israel for the latest crisis, saying it raised tensions by refusing to release Palestinian prisoners jailed for anti-Israeli activities.

``Mr. Netanyahu is trying to create a crisis before the arrival of President Clinton. We consider his conditions unacceptable,'' said chief Palestinian negotiator Saeb Erekat.

In the Wye agreement, Israel promised to withdraw from an additional 13 percent of the West Bank and release 750 Palestinian prisoners by January. In a first stage last month, it withdrew from 2 percent of the area and set free 250 prisoners, but most were criminals, not security prisoners, as the Palestinian Authority had expected.

Arafat raised the issue with Clinton earlier this week.

About half of the 2,500 Palestinians held by Israel are members of Arafat's Fatah faction. There has been growing anger in Fatah ranks over the Palestinian Authority's failure to get detainees released.

Jewish settlers, who oppose the latest peace deal, said that they would put Ramallah under siege if the army did not do so in retaliation for the attack on the soldier. ``We don't intend to allow Jews to be attacked without a response,'' said settler leader Aharon Domb.