An increasingly violent blood feud between supporters of rival leaders of the Armenian Orthodox Church has shaken not only the ancient and insular Armenian Quarter in Jerusalem's Old City, but much of the rest of the small Christian community in the Holy Land.

The violence worsened in May when two groups of Armenians armed with knives and clubs -- one backing Patriarch Yeshighe Derderian and the other supporting his rival, Archbishop Shahe Ajamian -- clashed in the Old City, leaving one dead and six seriously wounded. The dead man was a supporter of Ajamian.

The clashes recalled fights in recent years at Bethlehem's Church of the Nativity in which Greek Orthodox and Armenian clergymen, and some youths dressed in monks' robes, beat each other with sticks over disputes during the ceremonial cleaning of the basilica. Those incidents, unrelated to the current Armenian intracommunal violence, heightened concern within the entire Christian community over its image in the Holy Land and abroad.

Armenian sources said their 2,000-member community is rife with rumors of an imminent vengeance attack in the feud, leading one Christian leader, the Rev. Immanuel Jacobs, prior of the Dormition Abbey, to warn that the walled, 300-acre Armenian enclave in the Old City is becoming "a little Beirut."

"It's so incredible that this is happening today and not in the Middle Ages," said Jacobs, who, along with other Christian clergymen, has gotten nowhere in his efforts to mediate an end to the clashes, which began four years ago when Ajamian was deposed as chancellor of the church by Derderian and have gradually escalated since.

On the surface, the feud is one between two rival religious leaders, both strong personalities, and their followers. But Armenian Orthodox and other Christian sources said that it also involves community politics and control over church-owned financial holdings worth many millions of dollars.

Each side has accused the other of corruption, including charges of selling valuable artifacts from the church treasury and church-owned real estate.

Ajamian, in an interview, said that an internal investigation ordered three years ago by the catholicos, or spiritual leaders of the church, showed that Derderian had "appropriated" $2.5 million.

"That started all the attacks. In order to silence everybody, he is using all kinds of violent methods," said Ajamian, whose apartment in the Armenian Quarter was firebombed on Easter Sunday, 1984. Ajamian held Derderian responsible, a charge that the patriarch denies. The patriarch counters that the following week the archbishop sent a gang of his followers to brutally beat one of the patriarch's supporters.

An aide to Derderian denied that the catholicos' investigation showed that the patriarch had sold church property for personal gain, saying that eight parcels of land around the Old City's walls had been sold while Ajamian was the patriarch's right-hand man and solely responsible for church real estate.

"If the patriarch is corrupt, why did Ajamian cooperate with him for 20 years? Why could he not see the corruption before?" the Derderian aide asked.

He added, "The problem is an interpersonal problem, a personal struggle between two people. It is a difficult matter, and we would like to keep a low profile."

The aide denied reports that the patriarch's supporters were organized into armed gangs, saying, "There is overall agreement that the violent attacks for years have been organized by the patriarch's opponents. There were cases where people tried to run over our people with cars. There were days when he had to put guards at the [compound's] main gate."

Other Armenian sources said that the source of much of the violence is two youth clubs in the Armenian Quarter. Both split into pro-Derderian and pro-Ajamian factions when the church hierarchy, called the Brotherhood of St. James, named Derderian patriarch, filling an eight-year vacancy created in the early 1950s when the then-ruling Jordanian government intervened in the church's internal conflicts and deported the sitting patriarch.

Derderian brought Ajamian from Beirut to be his chancellor and top aide, but, according to church sources, a bitter rivalry between the two began almost immediately.

The feud is of no small significance to the world's 6 million Armenians. With the spiritual centers of ancient Armenia located in what is now part of Turkey and inaccessible to Armenians, and with the remainder of their homeland in the Soviet Union, the tiny Armenian Quarter in Jerusalem has become a focus of religious and national pilgrimage.

Isolated from much of the Armenian diaspora, the spiritual center of the church in the Soviet Republic of Armenia has little practical influence, leaving patriarchs with broad powers in their own communities and little chance for outside church authorities to remove them.

Presumably, the Armenian Orthodox Church in the United States, where about 600,000 Armenians live, could use financial pressure to intervene in the Jerusalem feud. Recently a group of American-Armenian bishops traveled to Beirut, Amman and Istanbul in an unsuccessful effort to find a solution to the Derderian-Ajamian clash, although it later curtailed funding of the patriarchate here and stopped construction of a new church in the Old City.

The Israeli government had maintained a close relationship with Ajamian, who, as chancellor, reportedly arranged land sales to the Israelis in East Jerusalem and the West Bank. However, the Israelis have appeared reluctant to become overtly involved in the power struggle, other than to refuse three years ago to extend the visa of the church's grand sacristan, Archbishop Kazanjian, who remains in Jerusalem without a legal residence permit. The move was seen as an attempt to pressure the patriarch into reinstating Ajamian.

Some Christian leaders in the Old City -- outside the Armenian Orthodox Church -- have been sharply critical of the lifestyles of both Ajamian and Derderian, who own palatial homes in the Armenian Quarter and elsewhere in Jerusalem and live in a luxury to which most priests are unaccustomed.

One prominent Christian clergyman, who asked not to be identified, suggested that the only solution to the communal warfare in the Armenian Quarter would be for some influential outside body of the church, possibly the American bishops, to force the removal of both Derderian and Ajamian and to install a new patriarch.

"The situation is intolerable. It is civil war in one of the oldest churches in the world. It is weakening the whole Christian community in Israel," the clergyman said.

However, neither Ajamian nor Derderian appeared ready to give up the battle.

"He is the one who is instigating one group against the other," Ajamian said of Derderian. "He, himself, is not loved by the community."

Derderian's aide, speaking for the patriarch, said, "The question of how many people support one or the other is of no relevance. The community has absolutely no say in the church hierarchy. It is a matter for the Brotherhood only. No other Armenian community can interfere."