Jordan's King Hussein, the reigning heir to the Hashemite throne and 42nd direct male descendant of the prophet Muhammad, stepped into a modest sitting room this afternoon and knelt before a faded wing-back chair.

He took a gaunt-eyed Israeli accountant's hand, three days after a rogue Jordanian soldier shot down her daughter, and humbly begged forgiveness. With that simple but enormously powerful act -- reprised in each of seven mourning homes, more than once on his knees -- Hussein recast his nation's relationship with the Jewish state for the third time in seven days.

"I looked in his face and I saw that he was ashamed, and he had tears in his eyes, and he was honest," said Miri Meiri, whose daughter Yaela, 13, was one of seven eighth-grade Israeli girls who died Thursday on a class trip to a scenic overlook on the Jordanian border. "I'm not a young girl any more. I can see the truth in people's eyes."

Just a week ago, Hussein sent a letter to Israeli Prime Minister Binyamin Netanyahu so drenched in rage and pain that their relationship seemed to be irreparably breached. Thursday's M-16 rifle fusillade, in which a Jordanian soldier chased screaming schoolgirls down a hill and killed them at point-blank range, threatened to transform Jordan's image among Israelis from their only friendly neighbor to just another dangerous Arab foe.

Today's journey of reconciliation, in which Hussein allowed Netanyahu to guide him arm in arm from the touchdown of his royal jet to its departure 11 hours later, consciously aimed at repairing both sets of wounds.

If this religious, conservative, blue-collar town 10 miles southwest of Jerusalem is any indicator, the king restored his status as the only Arab leader that most Israelis trust. And by Hussein's own testimony at a news conference tonight -- delivered most strongly in Arabic, for consumption at home -- "relations between Jordan and Israel are on their normal track, and the right track."

And yet the principal underlying dispute appeared tonight to be entirely unresolved. Netanyahu, after many warm words about restoring "in doubtful minds the general belief in the possibility of human friendship," announced that there will be no retreat from his plans to build a new Jewish neighborhood of 6,500 apartments in historically Arab East Jerusalem. That project was the focus of Hussein's charge last week that Netanyahu is bent on maneuvering "our Palestinian brethren into inevitable violent resistance" that could "bury the peace process for all times."

"I said they will begin this week," Netanyahu said, when asked in Hebrew about the timing for breaking ground. "They will begin this week."

With Arafat no less dug in on his commitment to resist the Israeli housing development, momentum toward serious conflict this week gathered pace. Again today there were new notes of menace, most strikingly this time from the Israeli side.

Justice Minister Tzahi Hanegbi, for several years considered Netanyahu's closest lieutenant, threatened "war to the finish" with the Palestinians if the housing construction leads to violent clashes.

"Our response will reach Arafat himself," Hanegbi said in remarks first made to Likud Party activists Saturday night and reaffirmed today. "He cannot continue to sit quietly in his villa on the coast with {his wife} Suha and give orders for operations."

At one point, Hanegbi suggested Arafat could be expelled again from Palestinian territory and set to "wandering back and forth between Tunisia and Baghdad, as he did for many years." At another, he alluded to the fate that met Yehiya Ayash, a radical Palestinian bomb-builder known as "the engineer," who was assassinated by Israelis agents in December 1995.

"Nobody who comes to wipe us out is immune, neither the engineer nor somebody in a villa," he said.

The likelihood of open conflict over the new building plan, which would bring 30,000 Jews to a pine-covered hill among Arab villages annexed by Israel to East Jerusalem, led several diplomatic observers to predict that Hussein's new confidence in the Israeli prime minister could prove short-lived. Accounts from top Jordanian and Israeli officials suggest that the two men have walked away from previous conversations with dramatically different understandings, and the diplomats said they fear the same for the "great hope and great courage" that Hussein said he had taken today.

"There's something missing in this picture," a senior Western official said. "How can Netanyahu say he'll go ahead with building and have the king say everything's fine?"

Netanyahu's aides appeared to be pinning their hopes on what they called a "compensatory package" to defuse Palestinian anger over the new construction at a site that Arabs call Jabal Abu Gheneim and Jews call Har Homa.

Netanyahu dispatched Maj. Gen. Shaul Mofaz to negotiate tonight with his Palestinian counterpart, Fayez Zeidan, over the airfield in the southern Gaza Strip that Palestinians built nearly two years ago but Israel has not yet permitted them to use. Sources said Mofaz offered new concessions intended to allow Arafat to fly there in his personal plane soon.

Netanyahu's interest today appeared to center at least as much on building up Hussein. Dore Gold, Netanyahu's senior foreign policy aide, credited the king with "reasserting a role as a bridge between Israel and the Palestinian Authority at a critical moment," after Hussein placed a call to Arafat and then handed the phone to Netanyahu.

The Israeli government also felt it had something to make up to Jordan after the reactions of some officials here to Hussein's angry letter a week ago. Some of those around Netanyahu accused the king of posturing for his Palestinian subjects or for Arab critics of Israel; other officials were cited in The Washington Post and the Israeli daily Yedioth Aharonoth as alluding to a history of mental illness in the Jordanian royal family. The latter suggestion, which fed a sinister interpretation of Netanyahu's own remarks about the need for "stability" in the Israeli-Jordanian relationship, enraged many Jordanians. Netanyahu's office put out a statement saying that "the inferences in the press regarding King Hussein's stability are an outrageous slander" and that Netanyahu was talking "about the need for stability in relations between nations."

In purely human terms, today's itinerary was risky and emotionally bruising for Hussein. One bereaved mother, who is deaf and mute and who had relied on her slain daughter as a link with the hearing world, signed: "I want my daughter back!" before collapsing before the monarch. Another demanded to know why Jordanian soldiers had not subdued their rogue comrade before he had taken so many lives.

But most typical was the family of Nurit Fatihi, another of the slain schoolgirls. Her grandfather, a Yemenite Jew, awaited Hussein at the apartment door with a welcoming tray of braided bread and salt. He then recited a special blessing for kings from Judaism's mystical cabalistic tradition.

Hussein, replying in the family's native tongue, said: "Your daughter is like my daughter, your loss is my loss. May God help you to bear your pain." CAPTION: King Hussein speaks with mother of Nurit Fatihi, one of the seven slain Israeli girls. Netanyahu, right, holds hand of the girl's father.