QABATIYA, WEST BANK -- Every time Palestinian demonstrators passed Mohammed Ayed's stone house on the main road through this town in the Israeli-occupied West Bank, they would chant, "Long live Palestine, death to the traitor." Sometimes Ayed could be seen peering uneasily through an upstairs window.

Then one day last week something snapped. During a mass protest march here, youths threw rocks at the house and Ayed responded with a burst of machine-gun fire. A four-year-old boy was killed and a dozen more people were wounded, and the incensed crowd laid siege to the house.

When it was over, Ayed was dead, his body hanging below a Palestinian flag on an electric pole at the town's central bus station. He was the first alleged collaborator to die since the Palestinian intifadheh, or "uprising," began nearly three months ago and the first ever to be lynched.

His killing has sent a wave of fear through the many Palestinians who cooperate with Israel in its military occupation of the West Bank and Gaza Strip and a wave of anger and remorse through the Israeli authorities who failed to save his life.

Some believe that Ayed's death may signal a new phase in which the uprising turns inward and Palestinians begin killing each other. But it may also be a sign of something equally important -- the end of the old arrangements through which Israeli occupiers have ruled the territories with the passive consent, and sometimes even active involvement, of their Arab subjects.

Residents say everyone in Qabatiya knew Ayed was an informer under the protection of the two Israeli "sheriffs" -- operatives of the Shin Bet internal security service assigned to oversee police matters in the town.

He and other known collaborators have long been part of the political and social landscape of the West Bank, as are the wastonaires, the well-connected Arab intermediaries who, for a fee, arrange building, travel and business permits for residents; the local Arab police or the town mukhtars who lead Shin Bet men after midnight to the houses of those targeted for arrest.

Now there is fear that the old lines between "acceptable" collaboration and betrayal are blurring and that under the new rules that are emerging, Palestinians holding civilian jobs in the occupation administration and even moderates seeking political dialogue with Israel or the United States may find themselves lumped together with the Ayeds.

"It's all right to work for the civil administration, to be a teacher in a government school, even to be a policeman," said Israeli journalist Danny Rubenstein, who has long covered the West Bank. "You can't give information about people and you can't sell land to Israelis. But now we might be heading into a new phase where the norms do not apply anymore."

Qabatiya remains closed by the military. Soldiers stand at each road into town, barring residents from leaving and visitors from entering. The Army has arrested more than 100 residents and demolished the houses of two alleged ringleaders although there were no charges filed and no trial.

"Those responsible will be found and punished with full severity," Maj. Gen. Amram Mitzna, military commander of the West Bank, told Israeli radio. "The smaller group that did the deed and incited the hundreds to go out on the streets and to go wild, we'll deal with them, and the town of Qabatiya itself will be punished."

A few residents have slipped through the cordon, hiking over the rocky foothills that surround Qabatiya. Over the weekend, a half-dozen of them discussed Ayed and his grisly death. Much of what they had to say could not be independently confirmed because the Israeli Army is disclosing few details about the incident and barring journalists from the area.

Ayed was a man in his late 30s, with a wife, several children and two grandchildren. Like many alleged collaborators, they said, he was recruited by the Shin Bet while imprisoned in the late 1960s for a security offense.

For many Palestinians, life under occupation seems a constant series of bottlenecks. At each bottleneck stands a Shin Bet agent who has the power to say yes or no. Anyone who wants to buy land, or build an addition to his house, or start a business or travel abroad must have a permit or document. Often the price, residents say, is willingness to give information.

As Rubenstein noted, there are different shades of collaboration. An estimated 120,000 residents of the West Bank and Gaza travel to work in Israel each day. Some even work in factories that make Israeli Army uniforms and nightsticks. More than 16,000 work as school teachers, clerks and other office help in the military administration that runs the occupied territories. All of these are deemed acceptable so long as they honor periodic strike calls.

Arab policemen are in another category. They are seen here as fighting common crime and most take pains not to get involved in security matters. Nonetheless the pressure on them to resign has increased dramatically in recent weeks.

Local mayors and city councilmen have also come under increased pressure.

Informers are looked upon as a separate breed. Every town and village has a few people who, rightly or wrongly, are branded as informers. In many places they are tolerated because they are under Israeli protection. But they are loathed.

The Shin Bet is aware of this hatred and sometimes even uses it as a weapon. Israeli author David Grossman, in his recent book "The Yellow Wind," describes how Shin Bet agents used it on one young Palestinian teacher who was preaching nationalist politics to his students.

Shin Bet agents frequently visited the teacher's house, according to Grossman, and in public "would slap him on the back and shower him with smiles and winks." Within six weeks the teacher, boycotted by his own students, took his family and moved to another village.

Residents of Qabatiya said Mohammed Ayed boasted of his Shin Bet connections and even liked to show off his Uzi submachine gun, a weapon that he and a handful of other collaborators were allowed to carry for self-protection.

About six months ago someone tried to kill Ayed by planting a bomb in his car after midnight, residents said. But Ayed chased them off with machine-gun fire. The next morning, those allegedly responsible were arrested.

Demonstrators had marched past Ayed's house for several days last week protesting the impending visit of Secretary of State George P. Shultz. Residents could not say exactly why last Wednesday's march ended in violence. Army officials said they believe the attack was premeditated retaliation by the families of some of those Ayed informed upon.

Whatever its origins, the attack turned into a full-scale siege after Ayed shot dead the four-year-old boy. "He killed first," said one witness. "After that, the atmosphere was that this man must die."

Rioters attacked with stones and bottles and threw firewood and tires over Ayed's balcony and then set them ablaze with molotov cocktails. Ayed, who barricaded himself inside the house with several family members, ran from window to window firing bursts at the mob while his wife phoned Army headquarters in nearby Jenin desperately seeking help.

Residents said an Army helicopter flew over the town three times dropping tear gas on the crowd but never made an attempt to rescue Ayed. At one point he even fired machine gun bursts at the chopper in an unsuccessful attempt to alert its crew to his plight.

Eventually he ran out of ammunition. Some residents claim Ayed shot himself with his last bullet, but an Army source said he was garroted with wire. All the versions agree that his lifeless body then was dragged to the bus station and left to hang for several hours.

The crowd knew that Ayed was not the only collaborator in Qabatiya. Soon after his death, residents said, someone broadcast a call from the local mosque for the others to turn in their weapons there. Four men did and allegedly took an oath on the Koran never to work for Israel again. Residents said someone from the mosque then took the weapons to the military governor's headquarters in Jenin and deposited them there.

The Army will not comment publicly on this account, but military sources confirmed that similar incidents have taken place in at least two West Bank communities in recent days.

An Army spokesman said the entire incident took two hours, not five, as some witnesses said, and that the Army had not had enough time to save Ayed's life.

But the Army quickly retaliated. Just after midnight the next morning, residents said, dozens of soldiers poured into Qabatiya, rounding up young men and taking them to a girl's school in town where witnesses said many were beaten. They said there were bloodstains on the ground at the school yard the next morning.