DEIR DIBWAN -- When an Arab jewelry dealer shot to death two other merchants outside the El Rancho Motel on Route 66 in Gallup, New Mexico, last year, the gunfire echoed all the way to this small Palestinian town atop the barren, rock-strewn hills of the Israeli-occupied West Bank.

Both the killer, Frank Zayad Abdelhadi, and his victims, two brothers named Said and Sami Nassar, hailed from Deir Dibwan, which over the years has dispatched hundreds of its native sons to America to seek their fortune -- and sometimes meet their fate. Abdelhadi said he shot out of self-defense, and a magistrate believed his account, which was supported by witnesses, and dismissed all charges.

But back home on the West Bank, justice was not so formal, nor so forgiving. The Nassar brothers came from Deir Dibwan's largest clan, while Frank Abdelhadi and his brother Suleiman, who was also involved in the fracas, come from a smaller one.

The killings set off a clan vendetta that has resulted in a stabbing, an ambush and a two-town riot that brought out Israeli troops. Despite the best efforts of Moslem elders, the dispute is still unresolved and potentially explosive.

The feud between the two clans -- called the Awadahs and the Saramahs -- is partly a story about a war between two proud families and the ways a traditional Arab society seeks to mediate peace.

But it is also a story about Deir Dibwan, a vibrant, affluent town balanced uneasily between ancient customs and 20th century life, and the powerful hold that the old ways still exert over the modern.

The ties between Israeli and American Jewry are well known and highly visible.

But the links between West Bank Palestinians and their American brethren are equally extensive and a crucial part of the fabric of this region, which has long relied on American cash to supplement and cushion a sparse existence.

Mayor Yusuf Ghannam estimates that half of Deir Dibwan's population of 8,000 live in the United States at any one time. Some stay permanently, but many more go for five to 10 years to earn enough money to start a business upon their return, build a house and enjoy a standard of living unavailable to those who remain here.

The hills around town are dotted with elaborate two-story villas on large, landscaped plots, monuments to the American dream transplanted to the Middle East. There are Chevrolets and Fords in the driveways, dishwashers, frost-free refrigerators and microwaves in the kitchens.

But residents bring back more than dollars. Deir Dibwanis speak with an American accent. Children wear American T-shirts and sneakers, baseballs and footballs are standard at local picnics, and there is a loose informality on the streets not usually seen in the Arab world.

"They dress, talk American, eat American food and celebrate Christmas and New Year's, just like Americans," says Ghannam, 67, who spent 10 years working in Brooklyn, smokes Salems and sometimes sports a baseball cap instead of traditional robe.

There is also an American-style pragmatism about the town and its energetic mayor, a political moderate who seeks to manipulate Israel's military occupation to the town's benefit.

Ghannam has 14 local projects under way, including renovation of the town's girls' school and construction of two traffic circles and Deir Dibwan's first sidewalks. The town will also soon be the first on the West Bank with a municipal computer and a coherent development plan, he boasts. Much of it has been financed by Israeli and Jordanian funds.

"The main reason our town is quiet is because we live in glass porches and verandas, and when you live like that you don't throw stones," he says.

But the shooting in Gallup in early March 1986 may have permanently shattered the tranquility of Deir Dibwan.

The killings occurred when the Nassar brothers, angered by a dispute over Indian jewelry, jumped the Abdelhadis while the latter were on their way to a funeral.

Witnesses said the Nassars smashed a window of the Abdelhadis' car with billy clubs, at which point Suleiman Abdelhadi jumped out. When the Nassars began beating him, brother Frank emerged and shot them both to death with a pistol.

Frank appeared in magistrate's court in a bullet-proof vest saying he feared for his life and after the decision dropping the charges, the brothers vanished for a time. But the Awadah clan of the Nassars took its vengeance here, not in New Mexico.

The following account comes from separate interviews with spokesmen for both clans, Ghannam for the Awadahs, and Rubhai Sobeh, an architect whose father is a leader of the Saramahs.

The town's basic social unit is the "hamouli" -- the Arabic term for clan, translated literally as "to carry," because each carries the burden for his fellow clan members. There are three main hamoulis in Deir Dibwan, each with its own neighborhood turf and social club.

Word quickly spread about the killing and Abdelhadi's release. For the Awadahs, clan justice on behalf of the dead brothers, who left two widows and eight children, became imperative.

"The Koran says that a murderer must be murdered and when a murder takes place, the whole hamouli is disgraced," said Ghannam. "People felt they had to join hands to regain their honor. My answer when this incident first came up was that it had happened in the States so let's keep it in the States, but no one would accept that."

Fearing revenge, the Saramahs sent out a call for mediation, and three days later, about 200 Arab dignitaries from across the West Bank -- mayors, judges, sheiks and Islamic holy men -- journeyed to Deir Dibwan. Since the dead brothers had yet to be buried no final settlement was possible, but the group asked the Awadahs for their terms to extend the armistice for three months.

The terms were tough. The Awadahs demanded that the Saramahs stick to their homes and neighborhood and not move freely through the town except for children going to school and the elderly going to the mosque. All Saramah merchants with stores in the Awadah part of town had to move out and the adult males of the immediate families of the Abdelhadi brothers, about 15 men in all, were required to leave town for a week.

The Awadahs also demanded $30,000 to cover the expense of flying back the two bodies and caskets from New Mexico along with three escorts, and another $6,000 as a penalty for the deaths.

All of these conditions were met. But they were not enough for Yusuf Said Nassar, 67, the father of the murdered brothers. According to accounts by both sides, he lured Dawud Sobeh, 75, Rubhai's father and the uncle of the Abdelhadis, to a coffeehouse in nearby Ramallah and stabbed him three times. Sobeh survived but was hospitalized for two weeks, while Nassar went to jail.

He was sentenced to seven years in Ramallah district court, a sentence that touched off a brawl in the courtroom and on the streets of Ramallah. The two sides continued brawling when they returned to Deir Dibwan -- windows in about 15 Saramah houses were smashed -- until Israeli soldiers came and imposed peace.

But the next day a gang of two dozen Awadahs ambushed Dawud Sobeh's Volvo sedan on the main road to Ramallah, smashing the windows and beating him with a stick.

That assault led to a new meeting between leaders of the two sides, and it was agreed that Sobeh would support a review of Nassar's sentence in return for an apology from his first assailant. The review request was made -- but the Sobehs say the apology has yet to come.

"We want him to come and say he's sorry, just that," says Rubhai Sobeh. "But if he doesn't come, we don't know what will happen. He will face jail or he will face us."

Ghannam appears ambivalent about the feud, taking the position that a certain amount of traditional vengeance is justifiable while seeking to avoid a permanent rift. But Rubhai Sobeh, says he fears the split has destroyed the town's spirit of cooperation and modernity. He notes that the feud has split the Deir Dibwan Association, a group formed by emigres to the United States and elsewhere that raised thousands of dollars to aid the town.

"It has destroyed all that we've worked for," says Rubhai Sobeh, 42, who lives in Amman, Jordan, but has made frequent trips home to try to put an end to the feud. "We love our village, we love peace. But the old people in this town refuse to listen. They still think the same way from 50 years ago. I am ashamed to say I am from Deir Dibwan."