Two Israeli soldiers were stabbed, one fatally, in the West Bank city of Hebron today while guarding a house that has become the focus of a drive by Jewish settlers to move into exclusively Arab sections of the city.

The Army command said troops stationed on nearby roofs spotted one or two Arabs attacking the Israeli soldiers and fired into the alley, wounding two Arabs, a man and a woman.

The injured soldiers were taken to the Hadassah Hospital in Jerusalem, where one died of his wounds. The two Arabs were taken to a hospital in Hebron.

Israeli occupation authorities immediately declared all of Hebron a "closed military area," barring reporters, and the central Arab marketplace was put under strict curfew as Jewish settlers forced their way into the narrow alleys of the the Arab casbah, seeking retaliation.

The Army command provided few details about the settlers' reactions. Army sources at the scene tonight said there was no rioting, but a military source added that "there is a noticeable amount of activity" by the settlers, and "tension is definitely there."

The attack was the most serious incident to occur in Hebron since a May 1980 ambush several blocks away by Palestinians in which six Jewish settlers and religious students died. That attack resulted in the deportation of Hebron's Arab mayor, Fahd Kawasme, and two other Palestinian leaders in the area, and was followed by an intensive campaign -- backed by the government of then-prime minister Menachem Begin -- to settle more Jews in the heart of Hebron's Arab marketplace.

Hebron is revered by both Moslems and Jews as the burial place of the patriarch Abraham. It has been the scene of several major Arab-Jewish clashes, including a 1929 massacre in which 59 Jews were killed.

Although 28 Jewish families are now living in restored houses on the site of the Abraham Synagogue in central Hebron, the marketplace that local residents call the casbah has, for the most part, been regarded as off-limits to Jewish settlement because of fears of clashes.

The Army command said the two soldiers, both reservists, were stabbed while on guard duty outside a rundown house from which seven right-wing members of the Knesset, Israel's parliament, were evicted on Aug. 20 after illegally occupying it for four days to press their demand for government-sponsored Jewish settlement in the center of Hebron.

The soldiers had been posted there to prevent the Knesset members or other settlement activists from returning.

The house is in an alley so narrow at the point of the entrance to the house that dense crowds almost always form in front of several vegetable stands there, making it relatively easy for any attacker to slip away.

One of the soldiers on the roof said in an interview on the Army radio that both victims were stabbed in the side and that one of them managed to stagger, bleeding, to the third floor of the building before collapsing.

The soldier who was interviewed, identified only as "David," said that minutes after the attack, Hebron settlement leader Rabbi Moshe Levinger and his wife, Miriam, arrived at the scene and helped bandage the victims.

Military sources said that after today's stabbings, Jewish settlers broke through a sealed-off passageway leading from the Abraham Synagogue to the casbah and were restrained by troops.

A military source who was at the scene a half hour after the attack said tonight that the passageway remained opened, and that a few settlers were still passing through it, although he said most Jews in Hebron were staying inside the synagogue compound.

There was a quick and strong reaction from Israeli political parties that support increased Jewish settlement in the West Bank. Most said that such attacks could be prevented only by more settlements.

Prime Minister Shimon Peres tonight warned that terrorist attacks such as that in Hebron today could doom the joint Jordanian-Palestinian peace initiative.