TWO WEEKS after the end of the Six-Day War in June 1967, the Israeli cabinet convened for a secret meeting to consider a thorny issue: what to do about the demographic problems created by the capture of the West Bank and Gaza, which had added nearly a million Arabs to Israeli jurisdiction.

One of the options discussed at the 1967 cabinet meeting was resettlement of Arabs living in refugee camps, according to the private diaries kept by Yaacov Herzog, who was at the time director-general of the prime minister's office. (The official transcript of the meeting remains secret, even now.)

Menachem Begin, who was then a cabinet minister, recommended the demolition of the refugee camps and the transfer of their residents to Sinai, captured from Egypt, according to Herzog's notes. Finance Minister Pinhas Sapir, supported by Foreign Minister Abba Eban, called for resettling the refugees in neighboring Arab countries, mainly Syria and Iraq.

The 1967 cabinet meeting didn't reach a decision on the resettlement issue. But sentiment seemed to favor Deputy Prime Minister Yigal Allon's proposal that Palestinian refugees be transported to the Sinai Desert and that Palestinians should be persuaded to move abroad. According to Herzog's notes, Allon said: "We do not do enough among the Arabs to encourage emigration."

Instead of forced relocation to the desert, Israel adopted a gentler resettlement plan in 1967. The prime minister's office, the Defense Ministry and the army jointly established a secret unit charged with "encouraging" the departure of the Palestinians for foreign shores. This secret plan surfaced publicly for the first time last November, when Ariel Sharon told a Tel Aviv audience: "For several years after the Six-Day War, assistance was given to Arabs who wished to emigrate from here. There was an organization which dealt with it."

The "organization" Sharon mentioned functioned smoothly and quietly for three years, and then disaster struck. Around midday on May 4, 1970, a young Palestinian entered the Israeli consulate in Asuncion, Paraguay. He seemed nervous and angrily demanded to see the ambassador, according to one witness. When the the ambassador's secretary tried to calm the Palestinian, he pulled out a pistol and shot her dead.

Israel's official spokesmen quickly declared that the attack was part of the Palestine Liberation Organization's terrorism led by Yasser Arafat. But it was in fact something quite different: an act of vengeance by a Palestinian and two accomplices who had been "resettled" in Paraguay as part of the secret Israeli relocation plan and were unhappy at what they believed was a raw deal from the Israelis.

The killer was identified by Paraguayan police investigators as a Palestinian named Talal ibn-Dimassi. (He and his two accomplices apparently fled the country and were never caught.) These Palestinians had lived in the Jabaliya refugee camp in Gaza. Fed up with life there, they had accepted an unusual offer to move to South America. The journey into voluntary exile began with a visit to the Israeli military governor's office in Gaza, not far from Dimassi's appliance store on El Mukhtar Street in Gaza City, and ended with a one-way ticket from an Israeli travel agency. The Israelis had worked intensively to find Arabs like Dimassi who were so disappointed with their lot that they might be candidates for the secret program. Hundreds of refugee families accepted the offer. The clandestine unit purchased, through intermediaries, farms and other land in Paraguay, Brazil and even pre-Gadhafi Libya.

Dimassi arrived in Paraguay a month before the shooting. Before he left Gaza, the Israelis had promised him and the other emigres that they would receive new passports and help in finding jobs. When the days passed, the pledges were not fulfilled and the Palestinians' pleas to the Israeli Embassy went unanswered, some of them decided on an act of protest and vengeance. Dimassi and his colleagues intended to kill the Israeli ambassador, but they panicked and killed the secretary instead.

The attack in Paraguay put an abrupt end to the secret Israeli plan, which the government had hoped would help solve the problem of the Palestinians by exporting them. Sending one million Arabs overseas would be prohibitively expensive, but around 1,000 did leave voluntarily in the early years of the occupation. The idea of relocating Palestinians isn't new, as the 1967 cabinet discussions show. And a similar scheme might be attractive today to a growing number of Israelis who wonder -- as they watch the recent uprising in the West Bank and Gaza -- how long the territories can be governed militarily.

Since the early days of Zionism, resettlement has been an option for dealing with the demographic problem posed by the large Arab population in the historical land of Israel. The founding fathers of the Zionist movement -- Herzl, Weizmann, Ben Gurion and others -- believed that they were establishing Israel in a land devoid of population. Only at a later stage, in the late 1930s, did they become aware of the demographic challenge: that the Arab majority in Palestine would not simply vanish. Various solutions were considered, including population transfer. The aim was to encourage Palestinians to leave their land, principally to new homes in Trans-Jordan. The Jewish leadership even negotiated for the purchase of land on the east bank of the Jordan River for resettlement of Arabs.

The Labor Zionists, influenced by the huge population transfers in Europe after World War I, believed that financial incentives would suffice. The conservative Zionist leader, Ze'ev Jabotinsky, also supported the idea. In November 1939, he wrote in a letter to one of his party members: "We should instruct American Jewry to mobilize half a billion dollars in order that Iraq and Saudi Arabia will absorb the Palestinian Arabs. There is no choice: The Arabs must make room for the Jews in Eretz Israel. If it was possible to transfer the Baltic peoples, it is also possible to move the Palestinian Arabs."

Nothing practical emerged from these grand ideas, but the notion of transfering the Arab population survived. Over the years, it has taken various forms. But the record shows that relocation has always been an Israeli option -- discussed quietly but seriously -- and not simply a pet proposal of right-wing extremists.

The first opportunity to deal directly with the demographic problem came with Israel's independence in 1948. The 1948 war resulted in population shifts, some in line with the United Nations partition plan that Arab leaders had rejected. The leadership of the newly-born state did not plan to expel the Arabs but obviously took advantage of the fighting.

Palestinian historians claim the Israeli army did have a program to remove the Arabs and replace them with Holocaust survivors and Jews from Arab countries. The traditional Israeli version accuses the Palestinian leadership of calling on its own people to leave their homes, promising "a return after victory."

A new book by an Israeli journalist, Benny Morris, lends some weight to the Palestinian version. His book, "The Birth of the Palestinian Refugee Problem, 1947-49," is based on Israeli army documents that were made available to the author after long legal battles with the military censor and the national archives. Morris points to several incidents in which Israeli troops expelled Palestinian villagers and took over their land and houses. The book clearly states, however, that Israel did not plan beforehand to remove the Palestinian Arabs and that all the expulsion activities resulted from the warfare itself.

In the years since 1948, Israeli leaders have generally avoided any comprehensive public discussion of expelling or relocating Palestinians. This issue apparently surfaced in a minor way in 1964, when a young Israeli colonel named Ariel Sharon reportedly asked his staff to research the numbers of buses, vans and trucks that would be required in case of war to transport some of the 300,000 Arabs out of northern Israel. According to Sharon's biographer, Uzi Benziman, most of Sharon's subordinates declined to cooperate with his request unless they received written orders and confirmation from the General Staff in Tel Aviv. Even though it was only a contingency plan, they feared that if one day the documents were published, Israel would be embarassed. (Sharon himself denies the Benziman account.)

During the Six-Day War in 1967, there wasn't any official policy to expel Palestinians as the Israeli army swept into the West Bank. But several Israeli military commanders took limited steps. One general, for instance, sent bulldozers to demolish three Arab villages near Latrun, on the road to Jerusalem, expelling their residents. Only the intervention of Israeli intellectuals saved the West Bank town of Qalqilya from a similar fate when an expulsion there was canceled. Since the Six-Day War, the subject of expulsion has been taboo. Even those who supported the notion deep in their hearts did not dare to raise it onto the national agenda. It was clear that mass deportations would be regarded as immoral and should not be discussed.

Only the fringe sect of Rabbi Meir Kahane adopted the call for expulsion, turning it into the heart of its political platform. A former American who founded the Jewish Defense League, Kahane calls openly for the removal of Arabs from Israel and its territories. He has offered to pay Palestinians to leave Israel. Only a very few accepted.

Kahane has enjoyed growing support among Israel's young generation. He won a seat in the Knesset in 1984, and recent polls suggest that his Kach party could win three or four of the 120 seats in the next election this November. That would enhance Kahane's claim that in calling for the expulsion of Palestinians, he is giving voice to the secret desire of many Israelis.

Other prominent Israelis are joining Kahane in talking about the once-taboo topic of expelling Arabs. Yosef Shapira, a National Religious Party minister, raised the issue of population transfer just before the last outbreak of civil unrest in the occupied territories. He said that Israel should encourage Palestinian emigration on a large scale, especially among the intelligentsia. Shapira even suggested, as Kahane did 15 years ago, that Israel's government pay $20,000 to every Arab who agrees to leave.

Ariel Sharon repeated Shapira's proposal but said Israel should not talk about it and instead put it into action. The deputy defense minister, Michael Dekel of the Likud, also echoed the call to transfer the Arabs. And Gideon Patt, a Liberal Party member of the Likud bloc and a government minister, threatened the Arabs of Israel that if they did not behave themselves they would be put on trucks and in taxicabs and sent to the border.

Most of the Israeli leadership still firmly rejects any talk of mass relocation of Palestinians. Israel reserves deportation as the most extreme punishment for Palestinian instigators; it has expelled some 900 Palestinians -- but only after following legal procedures that include a right to appeal to the Supreme Court.

Kahane's message -- expel the Palestinians or risk losing Jewish control of the land of Israel -- remains a potent one. And in the absence of a political solution to the Palestinian problem, Israel may be pushed toward such desperate measures.

Yossi Melman is the diplomatic correspondent of the Israeli daily newspaper Davar. Dan Raviv is a London-based CBS News correspondent. They are authors of the Hebrew-language book, "A Hostile Partnership: Israelis, Jordanians and Palestinians."