JERUSALEM, MAY 31 -- Israel's Cabinet today set up a judicial inquiry into interrogation methods used by the Shin Bet security service, which has been accused of fabricating evidence and torturing prisoners.

The decision came a week after the Supreme Court freed a Moslem officer in the Israeli Army, Lt. Izat Nafsu, from prison after finding that Shin Bet agents forced him to confess falsely to charges of treason and espionage, then lied in court about the case.

Cabinet Secretary Eliyakim Rubinstein said Supreme Court President Meir Shamgar would appoint a commission to investigate Shin Bet and recommend "proper methods of interrogation in the future, taking into account the special needs of the fight against terror." The commission's deliberations will be secret.

Attorney General Yosef Harish remained determined to pursue a separate police inquiry into Shin Bet conduct in the Nafsu case, which could result in a criminal trial, Israel radio said.

Officials of Shin Bet, which handles security against terrorist attacks, have warned a police inquiry would reveal their methods of operation and render the agency useless. Palestinians, who are frequently interrogated by Shin Bet, have long complained of mistreatment by the agency.

In the occupied West Bank today, Israeli soldiers rounded up as many as 2,000 men from the Balata refugee camp and arrested more than 60, Israeli officials said. A source said the raid aimed to end local influence by the Palestine Liberation Organization.