The death of Palestinian leader Yasser Arafat gives the Bush administration a rare diplomatic opening in the stalled Middle East peace process, though the extent and reach of the U.S. involvement is still to be determined, administration officials said.

One administration official said last night President Bush has come to understand that much of the opportunity depends on how the United States responds in the first days and weeks after Arafat's death. A battle between radical and moderate elements within Palestinian society appears certain to emerge, and direct U.S. involvement might ensure that moderate leadership takes hold in the Palestinian Authority, he said.

Yesterday afternoon, as Arafat was in his last hours of life, Bush signaled that deeper U.S. engagement in Middle East peace efforts was imminent. He said he saw an "opening for peace" and if the new Palestinian leadership requests assistance, the United States "will be more than willing to help build the institutions necessary for a free society to emerge."

Bush had cut off relations with Arafat more than two years ago, calling for a new Palestinian leadership untainted by terrorism. But Bush's decision, announced in a June 24, 2002, speech, essentially left the administration and Israel without a negotiating partner. Despite sporadic attempts to prod the parties to take initial steps toward peace, the administration's efforts often appeared ineffectual. Palestinian officials were unable to rein in terrorist acts, while Israelis did not destroy many settlement outposts or reduce most of the roadblocks or other daily humiliations of Palestinians.

Israeli Prime Minister Ariel Sharon late last year announced that he would unilaterally leave the Gaza Strip and a handful of settlements on the West Bank, as he built a fence separating Israelis and Palestinians. While the administration supported Sharon's plan, there has been little coordination with Palestinian officials. Some of Sharon's top aides suggested that once Gaza was evacuated, the whole process would go in a deep freeze for many years -- leaving Israel in control of the West Bank, where its most populated and richest settlements were located.

The dynamic has now been irrecoverably altered with Arafat's demise.

"The vision is two states, a Palestinian state and Israel, living side by side in peace," Bush told reporters as he met with NATO Secretary General Jaap de Hoop Scheffer. "I think we've got a chance to do that, and I look forward to being involved in that process."

A senior State Department official said the United States is prepared to help the Palestinians to hold elections to select a new president to replace Arafat, which under Palestinian law must take place in 60 days. "We want to help make that happen," he said, speaking on the condition of anonymity because of the diplomatic sensitivities involved.

Administration officials also believe a renewed effort at Middle East peacemaking may help mend frayed relationships with European allies, though some differences have already emerged. British Prime Minister Tony Blair is to arrive today in Washington for talks with Bush, and he has said he plans to stress "the importance of the Middle East peace process."

Two senior White House officials met last Friday on short notice with European officials to lay out administration thinking on the next steps in the Middle East, which include building on the Israeli withdrawal from the Gaza Strip and following the path outlined in the U.S.-backed peace plan known as the "road map." But they told European officials it would be a mistake to leapfrog a deliberative process and move directly to trying to settle vexing "final status" issues, such as Jerusalem.

An administration official said the meeting, conducted by National Security Council staff members Elliott Abrams and Daniel Fried, was intended to begin discussions on the issue at an early stage with European officials, rather than have administration decisions dictated to allies after the fact.

Blair, for his part, is under pressure at home to demonstrate that he is helping to lead Bush on the Arab-Israeli conflict, especially after his unwavering support of the invasion of Iraq. Blair recently has been questioned in Parliament by members of his own party on the need to press Bush on this issue, and the Independent newspaper warned yesterday that Blair was "treading a delicate line between favored ally and poodle."

Blair, who is likely to call elections in the middle of next year, will chair the Group of Eight industrialized countries in 2005 and assume the presidency of the European Union in July, giving him unusual diplomatic clout in a number of settings to press the case for active engagement in the Middle East. Some of his possible proposals could cause discomfort in Washington, including pressing Bush to appoint a special Middle East envoy or agreeing to an international peace conference that would be hosted by Britain.

Last week, Blair said achieving Middle East peace "is the single most pressing political challenge in our world today" and critical to winning the war on terrorism -- a link that Bush in the past has rejected.

A key variable is how the emerging Palestinian leadership responds, and whether the new leadership achieves legitimacy in the eyes of Palestinians, Israelis and the international community.

Edward G. Abington Jr., a former State Department official who advises the Palestinians, said in an interview from Ramallah that Palestinian officials had considered amending Palestinian law to allow the legislature to select a new president. But he said there was now "broad agreement" to stick to the current law and have elections take place within two months.

Abington also said there is emerging consensus that the leadership should not be centralized under one person -- that there should be different people holding the offices of president, prime minister and Palestine Liberation Organization head.

But he said that although there was a "real opportunity, it was a fleeting opportunity," especially with unemployment running as high as 60 percent and the Palestinian Authority in such dire financial straits that it can barely afford to finance its payrolls.

Secretary of State Colin L. Powell, in his own remarks to reporters yesterday, said it is important that the new Palestinian leadership fight terrorism and make it clear it "will not in any way give any kind of support to terrorist activities."

U.S. officials are still discussing who will represent the United States at Arafat's funeral. Since Bush cut off relations with Arafat, the question of senior-level attendance is awkward. But Assistant Secretary of State William J. Burns, who frequently met with Palestinian officials, appears increasingly likely to attend the funeral, officials said.

President Bush signaled new U.S. efforts in the Middle East.Supporters of Yasser Arafat await word on the condition of the Palestinian leader near his Ramallah compound, where he will be interred.