JERUSALEM, JUNE 26 -- A pipe bomb exploded early this morning at a bus stop in the West Jerusalem neighborhood of Baka, injuring two women on their way to work. Hours later, masked Arabs hurled stones at a kindergarten in the Jewish suburb of Neve Yaacov, north of Jerusalem, renewing a running battle of stones and firebombs that has been raging between Arabs and Jews in the area for four days.

It was, in short, another bad day for Jerusalem, which in a summer of sagging hopes and mounting tension has emerged as the latest focus of confrontation between Israeli Jews and Palestinians. Over the last few weeks, the city has permitted a relentless cycle of aggression and retaliation to take hold among its people, intensifying the fault lines of hatred between Arab and Jewish neighborhoods.

"Something has been breached" in Jerusalem, said Bonnie Boxer, a spokeswoman for Mayor Teddy Kollek. "Bonds have been broken, emotions have been unleashed that have found their answer on the other side. It's a very difficult time."

Today's events continued 12 days of nearly constant violence in Jerusalem, which long prided itself on avoiding most of the clashes and killings of the intifada, or Arab uprising, in the occupied West Bank and Gaza Strip. Last week, two Palestinians died and three Arab neighborhoods were put under curfew after fierce clashes between protesters and police. The riots began last Wednesday, and grew after a police patrol opened fire on protesters in Silwan, a village just below the Mount of Olives.

Meanwhile, Jews in Neve Yaacov and Arabs in the village of Dahyat Barid have been battling since Saturday across the weedy lot between their communities, only barely separated by police. Arabs charge that police have stood by as Jews from Neve Yaacov have rampaged among their homes, smashing windows with stones and bars.

Jewish residents say they have been subjected to a steady hail of stones and firebombs from Arab youth. "We want to kill the Arabs," said Illen Revivo, one of a group of teenagers who stood near the seam of Neve Yaacov and Dahyat Barid today, behind a line of police. Said shopkeeper Hanna Sheriff, "They've brought us to a situation where it's either us or them."

The surge of violence is a development that both Israeli and Palestinian leaders have been predicting ever since the breakdown this spring of a U.S. effort to set up Israeli-Palestinian negotiations was followed by several spectacular acts of terror. These included the mass killing of Palestinian workers by an Israeli gunman in May and a subsequent, foiled speedboat attack by Palestinian guerrillas on Israeli beaches.

Palestinians say they have been particularly antagonized by the formation of a new right-wing government under Prime Minister Yitzhak Shamir and the break in political contacts between the United States and the Palestine Liberation Organization. In an interview this week, a senior Israeli military source said that while the army did not expect a new outbreak of mass unrest by Palestinians in the occupied territories, "more and more people are desperate enough to take part in acts of violence and terror."

What is surprising is that the conflict is escalating in Jerusalem, a city of 350,000 Jews and 150,000 Arabs where only six of the nearly 1,000 deaths of the 30-month-old intifada had occurred before last week. Mayoral spokeswoman Boxer said authorities had been told that Arab activists attempted to step up activity in the city, which Israel claims as its "eternal capital," in order to attract greater attention.

"But I think the biggest problem is the absence of a peace process," Boxer said. "Without it, it's very hard to persuade people on both sides to remain patient."

From the Israeli point of view, the latest wave of trouble in Jersualem started June 14 between the Jewish neighborhood of East Talpiot, in southern Jerusalem, and the Arab area of Sur Bahir adjoining it. The violence began when an Arab stabbed a 12-year-old Jewish boy at a bus stop on the boundary between the two neighborhoods, then disappeared into Sur Bahir.

A crowd of East Talpiot residents later stormed into the streets of their Arab neighbors and launched what became a pitched battle of stones and bottles. Police intervened, and quelled the disorder only after placing Sur Bahir under curfew. But riots erupted anew last week when Palestinians marked the 30-day anniversary of the mass slaying of the Arab workers.

In a tough announcement Sunday, Police Inspector General Yaacov Turner blamed the recent violence on groups of Arab youths he said had attacked police with knives, axes and iron bars. "If residents of Silwan, Abu Tor and Ras Amud don't understand there are limits they just can't cross," Turner said in reference to the three neighborhoods under curfew, "there will be more people killed."

Arab activists responded that the police had aggravated the situation by unjustified firing of live ammunition on demonstrators and through measures of collective punishment, such as the curfews, that enraged whole neighborhoods. Moreover, they said, authorities had been conspicuously more lenient with Jewish troublemakers, taking no strong measures in Neve Yaacov even though its residents have staged raids on Arab homes on three successive nights.

"The police are making the same mistakes in East Jerusalem that the army has been making in the West Bank for the last three years," said Daoud Kuttab, a prominent East Jerusalem journalist. The police, he said, may feel encouraged to act more harshly against Arab protesters in the city because of the new government, which includes hard-line politicians favoring extreme measures against the Palestinians.

"For years we lived together fine," said shopkeeper Sheriff in Neve Yaacov. "Then the Arabs came and threw stones, and we did nothing. They did it again, and a third time and a fourth and a 10th. So now we're fighting back. And it's just going to get worse and worse."