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PERES, ARAFAT ALL SMILES AFTER TALKS

Palestinian leader Yasser Arafat and Israeli Foreign Minister Shimon Peres shook hands publicly in Lisbon yesterday after holding informal talks on a test cease-fire aimed at ending nine months of Mideast violence.

The two met for 2½ hours Friday night in the residence of Portuguese Prime Minister Antonio Guterres.

“I think it was a good occasion to exchange views informally in a rather agreeable atmosphere,” Peres said.

“One of the greatest problems we are facing is an emotional breakdown, the fact that the parties have lost confidence.”

Arafat praised the longtime Israeli peace negotiator as a “peace partner,” adding, “We have to thank him from all our hearts for his efforts.”

It was the Palestinian leader’s first meeting with a member of Israel’s government since Ariel Sharon was elected prime minister in February.

Speaking later, Arafat and Peres disagreed on the use of international observers to monitor the seven-day test cease-fire, which began Thursday.

Still, Portuguese officials said the meeting was an important signal from Sharon, who allowed the talks to take place and to be made public. Two weeks ago, Sharon had rejected a proposal for Peres to meet Arafat.

Arafat and Peres also came to Lisbon to address the 400 delegates at the 50th anniversary meeting of the Socialist International organization.

The Palestinian leader called for the deployment of foreign monitors in the conflict areas to oversee the cease-fire, brokered by Secretary of State Colin Powell.

“We need your voice to send international observers, without delay, to the Palestinian territory. I would like to ask: Why does the government of Israel reject the dispatching of international observers to consolidate and protect the cease-fire?” Arafat said.

But Peres said Israel’s position was that no outside observers would be allowed until the fighting ends.

“Observers can observe once you have peace. They cannot observe a lack of peace,” he said.

The plan should be followed “without any reductions or additions or deviations because any attempt to change will kill the plan and will kill the chance for peace,” he added.