JERUSALEM, JAN. 21 -- Slowly but surely this holy city, a place where Arabs and Jews have lived in uneasy but relatively tranquil coexistence for 20 years, is being pulled into the wave of civil unrest that has plagued the occupied West Bank and Gaza Strip for six weeks.

Two one-day explosions here have captured public attention -- an outbreak of rioting on Dec. 19 by Arab youths who smashed windows, barricaded streets and threw stones at police, and last Friday's violent clash between police and Palestinian demonstrators on the Temple Mount, site of two of Islam's most revered mosques.

But even more serious, many residents believe, have been several smaller clashes in recent days along the seams connecting Jewish and Arab neighborhoods. Palestinian youths have stoned buses carrying Jewish commuters to their homes and a handful of Jewish homes near Arab residential sections. There have been several confrontations between police and residents in the Moslem Quarter of the Old City since rightist Trade Minister Ariel Sharon recently moved into an apartment there.

At the same time, Palestinian merchants are engaged in a two-week-old strike that has paralyzed commerce in Arab East Jerusalem. When one moneychanger defied the boycott by remaining open, his shop was firebombed.

Police retaliated against the stone throwers earlier this week with midnight raids on Arab houses, roundups of male residents, brief curfews and beatings of some alleged instigators. Police officials said they have also arranged with the Army to obtain emergency powers if they deem it necessary to prevent further trouble.

No one has been killed, but to many the violence here seems increasingly like the strife that has rocked the occupied territories.

"We've been living here 12 years and we thought we enjoyed peaceful coexistence with our Arab neighbors," said Judy Segal, whose house in Jewish East Talpiot was stoned by Palestinian youths from nearby Jabel Mukaber last week. "I just feel very sad that the situation has gotten so bad it had to happen even here."

The violence poses not only a security problem but also a political dilemma for the Israeli government and the city's administration.

Jerusalem, in Israel's eyes, is not the same as the West Bank and Gaza. Its Arab sector was annexed after the June 1967 war and Israelis on both the left and right have said they will never surrender any of it in a future peace accord.

Because they are under Israeli sovereignty and civilian rule, Arab residents here enjoy certain civil rights that their brethren in the territories are denied under military occupation. And many Israelis contend that while the Arabs of Jerusalem may not be fond of Israeli rule, a process of resignation and conciliation has been under way that makes Jerusalem different, even special.

Thus, officials have sought to avoid the tough measures they have used elsewhere to crack down on the unrest. Police first threatened to force open Arab shops and break the strike, but then backed down. Police Minister Haim Bar-Lev said today that police would take "no active action" against striking merchants.

"The Israelis can't have it both ways," said Nabil Feidy, an Arab moneychanger on Salaheddin Street, East Jerusalem's main commercial center, whose shop has been closed for two weeks. "For years they've been saying Jerusalem is not part of the West Bank. But if they use force here, it proves they were wrong."

Mayor Teddy Kollek, for 20 years the principal advocate of the coexistence policy, said in an interview that he was "seriously worried" about the recent incidents. "The fact is that Jerusalem is a little special and whether it is Arab terrorists or the various nationalist movements, they've learned that whatever happens here makes bigger headlines. We're always a target, but so far, I believe life is going on as normal."

But there are some places in Jerusalem where fear of the violence is slowly becoming part of daily existence, changing the lives of those who live there and hardening their attitudes.

The Egged Company's No. 25 bus for several years has carried Jewish commuters from the new northern bedroom suburb of Neve Yaacov -- part of the West Bank land that the city annexed in 1967 -- to downtown Jerusalem. To get there, the route winds past a number of Arab neighborhoods, at one point passing a concrete shell atop a nearby hill that was to have become the summer palace of Jordan's King Hussein before the Israeli conquest.

For several weeks now, drivers and passengers said, the buses have been stoned regularly as they pass the village of Shueifat.

Yehiel Abu, a middle-aged Neve Yaacov resident who works the evening shift at a lunch stand downtown, said he has grown to dread the ride. "Of course I am afraid," he said. "My wife is also afraid. We don't know what's going on. I have no choice but to ride the bus. You can't just sit at home."

Ahmed, the Arab bus driver, said he disapproved of the stone throwers, but he also expressed chagrin over some of his Jewish passengers. Sometimes they yell at him when he stops for Arab passengers at the Shueifat bus stop. "There are crazy people on both sides who like to look for trouble," he said.

To quell the stone throwers, police got tough two nights ago, reportedly rounding up several dozen male residents of Shueifat at a local schoolyard and making them stand in the cold for several hours. A loudspeaker ordered other residents to remain indoors. Police, wary of being accused of using military tactics, said the order was not a curfew but a temporary measure designed to aid their investigation.

They have avoided similar tactics on Salaheddin Street. A van filled with police sat this afternoon at a main intersection there, but they took no action against the shuttered shops. By contrast, soldiers used crowbars to pry open shops in the West Bank city of Ramallah.

Kollek said many merchants have told him they want to open but are afraid they will be victimized if they do. Some have even received telephone calls warning that their children will be attacked at school if they do not honor the strike, city officials said.

Feidy, the moneychanger, said officials have oversimplified the situation. "As businessmen we're losing money, but other Palestinians are losing their lives," he said. "The Israelis act as if 5 percent of the people were making the disorders and the other 95 percent are happy with the occupation, and that's just not true."

Still, the element of intimidation appears to be a constant on Salaheddin Street. The firebombing of a moneychanger's shop Monday was an object lesson for many.

"We made a mistake and we paid for it," Nasser Kurd, son of the owner, told reporters. "Being against the government is okay. The worst thing the government can do is put you in jail. But being against your own people, that's not okay. They can kill you.

"It took them {the soldiers} three or four hours to open the shops in Ramallah and it took three or four kids to close them up again."

Judy Segal, the East Talpiot resident, and her 14-year-old son Danny said they were most surprised by the ages of the Arab stone throwers who attacked their house a week ago. Some were 10 or younger. And Danny said he knew that some were children with whom he had played when he was younger.

At the same time, said Judy Segal, "it was very frightening because rocks can kill. It's not a child's game. It's a horrible thing to live through because you feel so vulnerable and helpless."

The youths chucked baseball-sized rocks through the front door and a living room window along with several dozen smaller stones, some of them fired with slingshots. The stoning went on for 20 minutes until police arrived and eventually fired tear gas to disperse the rioters.

The Segals rank themselves on the left side of Israeli politics and support the idea of political and territorial compromise. They said they have not changed their minds since the attack, although Judy Segal added that it is important to use forceful tactics to put down the rioting.

What has changed, she and Danny said, is their sense of security. Danny said he always locks the front door now when he is home alone. His mother has kept the shutters down each day when she leaves for work, because "I don't want to come home to a living room filled with broken glass again."

Mayor Kollek said Friday may prove an important test of Jerusalem's ability to withstand the pressure of the unrest, as hundreds of Moslem worshippers gather again on the Temple Mount, scene of last week's clashes. He traveled to the site earlier this week to assure Moslem leaders that as long as they can maintain order, police would not interfere there.

Kollek said Arab residents cannot hope to roll back Israeli rule in the city and that the only choice is between the hard-line policies of rightists like Sharon and his own, more liberal approach.

"I happen to believe our policy of the last 20 years is the only possible one and we certainly intend to continue it," Kollek said. Otherwise, "our problems can only escalate."