Police said today they have arrested five Israeli Arabs in connection with Sunday's car bomb blasts in northern Israel, eliciting nervous reaction from many Israelis who have come to believe that Palestinian extremist groups are the only ones waging terrorist campaigns against the Jewish state.

One bomb exploded in the crowded resort city of Tiberias, on the Sea of Galilee, and the other in the coastal, densely populated city of Haifa. Three people assumed to have been transporting the bombs were killed while sitting in the cars when the explosives detonated, apparently prematurely. Two bystanders were injured, one seriously.

The bombs went off less than 24 hours after Israeli and Palestinian leaders signed a land-for-peace agreement intended to restart their flagging peace process.

The arrests seemed to substantiate the concerns of Israeli intelligence officials that there could be a growing sense of alienation and extremism among some Arab citizens of Israel. An Israeli Arab was arrested last week in the killing of a Jewish couple in a forest in northern Israel. Israeli security officials said the suspect was a member of an Islamic fundamentalist group that had been considered nonviolent.

"We know there are extremists among our Arab citizens, but until now our feeling has been that there are not many of them," said a senior Israeli intelligence official. "We have not considered them a serious threat."

Israeli officials made a point today of publicly describing Israeli Arabs as loyal citizens. Deputy Defense Minister Ephraim Sneh, speaking on government radio, said: "It's feasible that terror organizations succeeded [in recruiting] a few Israelis. But to generalize, to blame the entire community of Israeli Arabs is a very grave mistake."

Sneh said it is important to allay feelings of alienation among Arab Israelis by closing "the terrible, unbearable gap in services that the Israeli Arab community suffers."

About 1 million of Israel's 6 million citizens are Arabs, who are predominantly Muslims. In general, they believe they are treated as second-class citizens, and their towns are among the country's poorest.

Government officials cautioned against assuming that those arrested today are part of a new Israeli-based terrorist organization. Instead, one official said, it is more likely that Palestinian extremist groups used Israeli Arabs to transport the bombs to their intended targets.

"If the terrorists live in Israel, [then] when we accuse Palestinian leaders of not doing enough to stop terrorism, they can say the same thing about us," said the official, who asked not to be identified.

Still, some Israelis were clearly disturbed by the arrests. Reuven Rivlin, head of the legislative caucus for the main opposition Likud party, said, "This is not good at all. It's a problem we've never had before."

Speaking for the politically conservative association of Israeli settlers who live in the occupied territories, Yehudit Tayar questioned whether a new front was opening in the conflict between Arabs and Israelis.

"We might one day have to fight for the Galilee again," she said, referring to a part of northern Israel that is heavily populated by Israeli Arabs.

CAPTION: An Israeli policewoman checks the identity documents of two Israeli Arabs who work in Jerusalem. Police arrested five Israeli Arabs in connection with Sunday's car bomb blasts.