Recent hopes for a Mideast peace agreement were shattered yesterday, as Israeli helicopters launched rockets at Palestinian leader Yasser Arafat's compound in retaliation for the killing of three Israeli soldiers by a mob of enraged Palestinians.

Israeli troops suffered their worst losses yet at the hands of incensed Palestinians, and Israel's combat helicopters attacked several high-profile Palestinian targets. Meanwhile, Israeli tanks rumbled to the outskirts of Palestinian cities.

"This is a declaration of war--a crazy war," said Saeb Erekat, a senior Palestinian official.

Arafat spoke in a conference call with President Clinton and Egyptian President Hosni Mubarak, Arafat's office said yesterday.

Clinton implored Palestinians and Israelis "to stop the bloodshed, to restore calm" and to begin talking rather than fighting.

"I call on both sides to undertake a cease-fire immediately, and immediately to condemn all acts of violence," Clinton said.

In nearby Yemen, suicide bombers in a small skiff blasted a hole in the U.S. warship Cole yesterday at a refueling stop, American officials said.

The blast killed six members of the crew, injured 35 and left 11 missing.