Israeli Prime Minister Shimon Peres announced tonight that he was firing his controversial trade minister, Ariel Sharon, precipitating a Cabinet crisis that could bring down the 14-month-old national unity government.

Following a series of bitter attacks by Sharon against Peres' initiative for direct Israeli-Jordanian peace talks, the prime minister was reported to have read Sharon a dismissal letter at an emergency meeting of the Cabinet. Sharon's Likud faction in the government coalition refused to accept the dismissal, triggering the most serious crisis since the government was formed in September 1984.

The right-wing Likud faction scheduled meetings Thursday to decide whether to walk out of the coalition.

There were conflicting reports tonight over whether Peres actually handed the written dismissal notice to Sharon. Under Israeli law, the dismissal does not take effect until 48 hours after the letter is personally delivered.

During the 48-hour period before the dismissal takes effect, Peres' Labor Alignment and its partner in the fragile coalition government, Likud, could find a way out of the impasse.

Sharon, one of the most charismatic and outspoken political figures in Israeli military and political life since Israel gained independence 37 years ago, was reported to be preparing a new challenge to Peres' leadership following the confrontation.

Sharon earlier had submitted to Peres a letter of apology for his public remarks against the prime minister, professing no intention to "directly insult" Peres.

And, in a statement in parliament, Sharon apologized for any "personal insult," but added: "I stand by my opinions regarding the essential political issues."

Peres rejected the apology and insisted that Sharon either offer a clear retraction of his criticism or leave the government. Peres said that if Sharon makes "clear and unequivocal" retractions Thursday, he would withdraw his letter dismissing the trade minister.

Sharon, who was defense minister in the government of former prime minister Menachem Begin, was architect of the 1982 invasion of Lebanon.

Peres' Labor Alignment tonight was seeking to put together a narrow-based coalition government to supplant the broad national unity government, possibly with the assistance of small religious parties and left-wing factions that have been generally supportive of Peres' foreign policy.

Before Sharon issued his apology, sources close to Peres said that if the Likud walked out of the government, the prime minister was prepared to continue in the leadership with a narrow-based coalition of Labor and several small parties.

Without the Likud's 41 seats in Israel's 120-member parliament, the Labor Alignment and the remaining coalition partners would have only 56 seats, five short of the simple majority needed to survive a no-confidence vote, assuming that Peres would be successful in winning the religious parties to his side.

Coupled with either support or abstentions by the three legislators of the Citizens Rights Movement and the six members of the leftist Mapam Party, Peres might be able to continue in power with such a narrow coalition, Labor Party strategists said.

The confrontation began building Monday night when Sharon, in a speech in Haifa, issued a vituperative attack on Peres, accusing the prime minister of "unequaled cynicism" and "base craftiness" in conducting secret peace negotiations without consulting his Cabinet.

He was referring to reports, denied by Peres but widely accepted as factual throughout the parliament, or Knesset, that the prime minister met secretly with Jordan's King Hussein in Europe last month. Later, through diplomatic mediation by the United States, Peres reportedly reached an informal understanding with the Jordanian monarch that Israel would accept direct peace negotiations in an international conference if a Jordanian delegation included only Palestinians acceptable to Israel.

Charging that Peres was "leading the government down a crooked path without its ministers having any idea of what's going on," Sharon then turned on Hussein, declaring: "This hypocrite from Amman receives almost daily compliments from Peres, despite the fact that the PLO headquarters continue to operate in Amman."

Sharon long has been outspoken in his criticism of Peres' foreign policy, accusing the prime minister of attempting to impose Labor Party plans to make territorial concessions in exchange for peace. His latest attacks, however, Peres' aides said, were unprecedented in their personal vindictiveness and seeming intent to cause the government to fall so the trade minister could make a challenge for the leadership of the Likud bloc.

The next day, Peres lashed back at Sharon in a speech in the Negev desert development town of Arad, obliquely referring to the trade minister as a "zealot" and saying that his remarks "exceed any possible norm within the framework of a national unity government."

Following Peres' response, Sharon this morning defiantly repeated his charges, saying in a radio interview that the "question of the style" in which he expresses himself was not as important as the issue of Peres' handling of the peace initiative.

Referring to a widely published newspaper photograph of an Israeli who was stabbed in Jerusalem last week, Sharon declared, "We all see shocking pictures of Jews lying with knives in their backs while we continue to conduct secret negotiations with Hussein when the headquarters of the murderers are operating from his capital."

Under the September 1984 coalition agreement, the prime minister cannot fire a minister from the other faction in the Cabinet without the consent of that faction's leader, or alternate prime minister. Under the current phase of the rotation system of premiership, this means that Peres cannot -- without violating the coalition pact -- fire any Likud minister without the consent of Likud leader Yitzhak Shamir.

However, Peres' aides said today that under the "collective responsibility" provision of Israel's Basic Law on Government, a prime minister has absolute discretion in firing a minister.

The aides said that Sharon violated that law when, after the 10-member inner cabinet rejected his demand that PLO bases in Jordan be bombed by the Israeli Air Force, the trade minister said the Labor Party ministers were responsible for the consequences of Palestinian terrorist attacks initiated by the PLO. Peres is understood to have told Shamir that when there is a contradiction between parliamentary law and the coalition agreement, the law will take precedence. Peres' coalition allies outside the Likud appeared to line up behind the prime minister in his test of strength with Sharon.

Communications Minister Amnon Rubenstein, of the small Shinui Party, declared, "No prime minister, no government, no parliament and actually no nation can stand by and see every rule of conduct being broken, every concept of collective responsibility being shattered, without doing anything. You just simply cannot run a government like that."