Countdown to global crisis

The threat of all-out war in the Middle East and a global energy crisis sent stock markets tumbling around the world yesterday.

In the bloodiest day to grip the region in a fortnight of mayhem, Israel responded with airstrikes to the mob murder of two soldiers on the Palestinian West Bank, and suicide bombers in an inflatable Zodiac ripped a huge hole in the side of a United States warship in Yemen.

The attack on the destroyer USS Cole in the port of Aden killed at least six and injured dozens.

Diplomatic efforts, including a major push by Egyptian President Hosni Mubarak, were being made last night in a bid to get Israeli Prime Minister Ehud Barak and Palestinian leader Yasser Arafat to meet.

Anguish and anxiety reverberated quickly around the world yesterday.

Oil prices rose above $US35 a barrel for the first time since 1990, and American stocks posted their biggest decline in six months.

New Zealand's Top 40 Index shed 2.2 per cent as investors fled to the relative safety of US dollar assets.

A fortnight of violence in the Middle East has resulted in more than 100 deaths, almost all Palestinians and Israeli Arabs.

The worst day in the latest crisis began when a frenzied Palestinian mob lynched two Israeli soldiers being held at a Palestinian police station in Ramallah, on the West Bank.

Captured by television cameras and beamed around the world, the brutal attack culminated in the soldiers' bloodied bodies being thrown from the windows of the building and set alight in the street below.

Israeli officials claimed the soldiers took a wrong turn on their way to duty, but Palestinians believed they were undercover agents.

Israeli helicopter gunships launched several waves of attacks on the police station and on Yasser Arafat's residential compound.

Exchanges of fire on the West Bank continued overnight in the divided city of Hebron and Palestinian-ruled Jericho, where Israeli helicopters fired missiles at a police academy.

The Israeli Army said the blasts followed the torching of a synagogue in Jericho.

Palestinian chief negotiator Saeb Erakat describe the attacks as "an all-out war against our people."

The attack on the USS Cole brought an American warning that those responsible would be punished.



Witnesses said a Zodiac inflatable craft, which was helping the Cole to berth at Aden for refuelling, drew up alongside the ship and exploded.

Two men were seen getting to their feet and standing to attention at the moment of ignition.

The explosion left a 12m by 6m hole at the ship's waterline. The flooding was contained after the ship developed a 4-degree list.



President Bill Clinton ordered all US ships in the region to leave port and head for the safety of the seas. Medical experts and anti-terrorist investigators were rushed to Yemen.

"If, as it now appears, it was an act of terrorism, it was a despicable and cowardly act," a grim Mr Clinton said at a White House press conference. "We will find who was responsible and hold them accountable."

The President also reacted strongly to the events in Ramallah, saying there was no justification for mob violence and calling for a ceasefire.

Financial analysts fear a repeat of the 1973 Arab embargo on oil exports to the US, which caused global shortages and sent prices soaring.

But others say the increased dependence of the region's oil producers on the US and improved relations between Arab states and Washington will stop any embargo.

Tensions were also heightened later in the day by an explosion near the British Embassy in the Yemeni capital, San'a.

No injuries were reported, but windows in the embassy and in neighbouring buildings were shattered.

British Foreign Secretary Robin Cook said last night that it appeared a bomb had been flung over the wall around around the embassy

Thousands of Iraqi soldiers, part of the elite Republican Guard, were heading west towards the country's border with Jordan.

American intelligence officials described the move as diplomatic showmanship by Saddam Hussein.

New Zealand peacekeeping soldier John Nicol spoke to the Weekend Herald last night from Jerusalem during a long shift helping evacuate UN workers from Ramallah.

Captain Nicol has been in Jerusalem for just over a year as part of the UN Truce Supervision Organisation, monitoring the peace treaties between Israel and its neighbours, and liaising with locals.

He had been on duty for 25 hours without a break, and had another five hours to go before he could snatch a few hours sleep.

He described seeing and hearing the violence when it erupted in Jerusalem's Old City less than 2km from where the UN is stationed.

"We could see the explosions and people running around ... We had demonstrations and shooting within 100m of the compound."

During his time there, he has had stones thrown at him by Palestinians and been accidentally shot at.

The peacekeepers are in UN uniform and are unarmed, which, Captain Nicol said, was a calming factor.



"But whether I get out of here is another question - there'll be no staff here to issue tickets or anything because I am evacuating them."

Foreign Minister Phil Goff described the Middle East crisis as the most serious in a decade.

"It threatens to spill over into more acts of terrorism worldwide."

Mr Goff said New Zealand was giving $100,000 to the UN Relief and Works Agency for Palestine for emergency medical relief.