JERUSALEM, JUNE 1 -- Fifty leading Palestinian activists from the West Bank, the Gaza Strip and Jerusalem said today that they were breaking off contacts with the U.S. government and called on Arab states to initiate sanctions against the United States, including "use of the oil weapon."

Palestinian leaders here also gave up a 13-day hunger strike for new support for the Arab uprising against Israel. Both actions followed Washington's veto Thursday night of a United Nations Security Council initiative to dispatch a fact-finding team to the Israeli-occupied territories to report on the situation of the Palestinians.

In vetoing the Security Council resolution, U.S. Ambassador Thomas Pickering said the measure was "more likely to add to the problems, rather than help resolve the peace process in the region."

The militant reaction to the U.S. veto was an indication of the rapid deterioration of relations between the Bush administration and Palestinian leaders following a failed Palestinian guerrilla attack against the Israeli coast Thursday. It also reflected the disappointment of the local Palestinian leadership in its effort to advance the 2 1/2-year-old rebellion against Israel through non-violent tactics.

For the Israeli government under acting Prime Minister Yitzhak Shamir, the sudden U.S.-Palestinian tensions have provided a welcome respite after a period in which Washington has been sharply critical of Israeli behavior. One official close to Shamir today said the changed atmosphere would make it easier for the prime minister to proceed with forming a new, right-wing coalition government next week that would reject U.S. proposals for Israeli-Palestinian negotiations.

However, officials predicted that Shamir's relationship with the Bush administration would continue to be problematic. "There will be ups and downs, and the problems will come up again," said one senior official. "We still have to work with each other to come up with some compromises."

The hunger strike by the local leaders, which included up to 20 prominent figures from the West Bank, Gaza Strip and East Jerusalem, was launched following the slaying of seven Arab workers May 20 by an Israeli civilian whom authorities described as deranged. Strike leaders hoped to revive support for the uprising, known in Arabic as the intifada, while heading off any escalation of the armed struggle sought by radicals.

Throughout the strike, staged in a large tent on the grounds of the Red Cross in Jerusalem, the Palestinian leaders argued for non-violent tactics with delegations of Palestinian youths and representatives of the intifada's local committees. The most prominent of the striking leaders, Faisal Husseini, delivered several lectures arguing that the rebellion should concentrate on winning over public opinion both abroad and inside Israel by stressing its commitment to peace and Israel's security.

The campaign was dealt a serious political blow Wednesday when a Palestine Liberation Organization faction launched an abortive but ambitious seaborne attack on Israel's Mediterranean beaches. Officially, the Bush administration has said it will not make any decision about continuing its 18-month-old political dialogue with the PLO until it has more information about the attempted attack. But U.S. officals say that it will be difficult to continue the talks if PLO leader Yasser Arafat fails to denounce the attack and discipline the perpetrators.

Like Arafat, the Palestinian politicians here dissociated themselves from the boat attack but declined to condemn it formally. Privately they said the PLO's radicals were undermining their strategy here, but none was willing to criticize the Tunis-based leadership publicly.

The final setback to the hunger strike came when the United States blocked the Security Council initiative. The strikers had made U.N. intervention in the occupied territories the chief demand of their action.

The U.S. vote, said the strikers' statement, "shows that the American administration is opposed to the cause of our people, human rights and international peace in general." It said Arab states should begin a boycott of American goods, break off military cooperation with Washington and withdraw funds from U.S. banks, in addition to withholding oil supplies.

The local Arab leaders, who in addition to Husseini included such PLO supporters as Radwan Abu Ayash, Ziad Abu Ziad and Sari Nusseibeh, said they would boycott contacts with the U.S. consulate in Jerusalem and refuse to meet with visiting officials and emissaries from Washington.

The tough stance against the United States echoed that put forward earlier this week by Arafat and Iraqi leader Saddam Hussein during an Arab summit meeting in Baghdad. However, the Arab states declined to adopt any sanctions against the United States or endorse the PLO's harshest criticisms of Washington.

In Baghdad, Arafat said today that the U.S. veto was "regrettable, painful and this American policy will increase violence in the region."

Asked today about the effect of a rupture of the U.S.-PLO dialogue, Husseini said, "The dialogue between the PLO and the United States from the beginning was a relative one, a very low-level one, and stopping it, I think, won't have much effect."

But Bassam Abu Sharif, Arafat's political adviser, told Reuter news agency in Tunis today: "There are intensive contacts going on at present between the PLO and the United States to keep the peace process going."

Shamir's government, which has lobbied long and hard to break the ties between the United States and PLO, today continued to press for a suspension of the dialogue. However, Shamir's cabinet chief, Yossi Ben Aharon, said officials here suspected that the Bush administration would not definitively break off the relationship, even if a halt to contacts were announced in the next few days.

"I'm afraid the U.S. has put so much emphasis on its dialogue with the PLO, not only in terms of its policy toward the Palestinians but of its policy toward the Arab world, that it will be difficult for it to make a real break," Aharon said. He added: "The U.S. has an exaggerated fear of a radicalization in the Arab world against the U.S. But what they don't realize is that the U.S. can now call the shots -- the Arabs have no alternative to working with the Americans."