Hillary Rodham Clinton today waded back into the volatile issue that marked her worst political disaster, pledging to pursue only incremental health care reforms if she is elected to the Senate but suggesting that she still believes the system needs major reconstructive surgery.

At a health care forum on the second day of her statewide "listening tour," Clinton seemed conflicted about the issue that first thrust her onto the national policymaking stage. She said that ever since the demise of her comprehensive national health care plan in 1994, she has belonged to the "school of smaller steps." But then she described the smaller steps that her husband and most congressional Democrats are pushing these days as inadequate responses to "underlying structural problems," such as the rising influence of money in medicine and the growing ranks of the uninsured.

Health care could be a political minefield for the first lady, and aides to her potential Republican rivals have warned that they will use the "HillaryCare" debacle to portray her as a big-government liberal. Nevertheless, Clinton seemed willing to position herself to the left of her party at her meeting before several dozen medical professionals and consumers at the Bassett Health Care Center.

She said she supported the "patients' bill of rights" that Democrats have proposed to rein in managed-care plans, but called the fairly sweeping bill a "diversion" that will not reform the money-driven insurance industry. She also endorsed her husband's new plan to expand prescription drug coverage for the elderly, but said the problems created by rising pharmaceutical costs are "much greater than that."

"This is going to be an increasingly contentious issue," she said. "We're going to have to address it, or else we're just going to have to say that the market is what the market is."

Clinton's first return to the health care debate as a candidate was the highlight of another eventful day on the campaign trail. She also pledged in an interview with New York reporters to serve a full six years if elected, squelching speculation that she might run for president in 2004. She said she favored the death penalty but was not an "enthusiastic death penalty supporter." The first lady also said she expects her husband to campaign for her in New York, one of his best states in 1992 and 1996.

But in a move that took State Department officials by surprise, her campaign spokesman confirmed that she considers Jerusalem "the eternal and indivisible capital of Israel," a break with the administration's policy. In a letter to the Orthodox Union, a New York-based group representing about 750 Orthodox Jewish synagogues in the United States, she also said she favors shifting the U.S. Embassy from Tel Aviv to Jerusalem, a move her husband delayed with a waiver in June.

The first lady antagonized Jews last year by expressing her support for a Palestinian state, so her Jerusalem stance may be an effort to ingratiate herself with that important New York constituency.

It is also a split with her husband, but one he surely understands: In 1992, when he was a presidential candidate, he also said that Jerusalem should be "the eternal and indivisible capital of Israel" and that he believed "in principle" the U.S. Embassy should be moved from Tel Aviv to Jerusalem. It was only after he became president that he adopted the previous U.S. policy, that Israel and the Palestinians should decide the fate of Jerusalem in talks on "final status" issues, together with borders, refugees and Jewish settlements.

When reporters in Washington asked about the first lady's position, State Department spokesman James Foley would say only: "The first lady was expressing her personal views and it does not complicate in any way our efforts to promote and accelerate the Middle East peace process."

But it was the health care forum that best spotlighted the promise and potential pitfalls of the first lady's all-but-declared bid for the Senate. This was Clinton at the top of her game, encyclopedic in her knowledge of Medicaid reimbursement formulas, cutting-edge arthritis research and European pharmaceutical policies, and empathetic in her reactions.

She used gripping anecdotes to make her points, such as the tale about an Ithaca woman whose insurance company had refused to pay for her emergency helicopter ride because she did not get it preapproved while unconscious. Clinton comforted audience members who shared stories: "You hit on so many issues that need to be addressed."

"It was an incredible exchange of ideas," said Rosemary Bennett, a Bassett nurse. "She's so attentive to people, and she's so knowledgeable about the issues. I was really impressed." Yet the wide-ranging forum will do little to quiet critics who say the first lady takes a government-first approach to health policy.

Polls suggest that health care is a popular issue and that voters trust Democrats more than Republicans to address it. But Democrats remember how the backlash over the first lady's doomed 1,300-page plan to ensure universal access to coverage while cutting costs paralyzed the administration in 1994, and helped the GOP take over Congress that November.

Clinton did tell her audience of doctors, nurses, patients and administrators that she has learned hard lessons about all-encompassing health care solutions, and politely brushed off a potentially embarrassing question about a government-run single-payer system.

But while she called the American health care system the best in the world, she made it clear that she remains tremendously dissatisfied with the way it works in the managed-care era. Nurses, she said, are being turned into "paper-pushers and bureaucrats." Medicine, she said, is being converted from a calling into a business. Insurance companies, she complained, are denying coverage to the people who need it most in order to fatten their corporate profits. "I think we've got to rethink the way we insure people in this country," she told a local farmer who was rushed to the hospital last year after being trampled by a bull. "It's something I've thought about a lot."

After the event, though, Clinton's aides emphasized that she has abandoned her grand plans to revolutionize health care. "She's made it very clear that she doesn't intend to go down that road again," said campaign spokesman Howard Wolfson.

In another effort to distance herself from her husband, Clinton has been raising concerns about the effects recent Medicare cuts have had on New York's teaching hospitals. Bassett stands to lose $16.5 million in funding over the next five years, and Clinton today described teaching hospitals once again as "the crown jewels" of the American health care system. "Teaching hospitals are a particular concern, and should be a concern of everyone who cares about health care," she said.

The question is: What will she do to help them? Clinton shied away from specific solutions today; she is, after all, only "listening." The Association of American Medical Colleges has warned that by 2002, 40 percent of all teaching hospitals will be losing money. Ralph Muller, chairman of the association's Medicare task force, said the first lady can help prevent that. "Hopefully, she can get the White House to listen to her," Muller said. "We could really use her help."

CAPTION: On Day 2 of her statewide "listening tour," Hillary Rodham Clinton speaks with a group of New York health care professionals on incremental reforms.