An Israeli flag flew Friday over the symbol of the Palestinian political presence in Jerusalem, a squat stone building known as Orient House, after an Israeli takeover with grave political overtones.

At 2 a.m., 12 hours after a Palestinian suicide bomber killed 15 people in the middle of Jerusalem, Israeli police converged on the building, arrested the seven Palestinian guards, searched offices, confiscated documents and closed it down.

Israeli officials said it was a move to assert its authority in the traditionally Arab section of the city after years of growing Palestinian power centered on the Orient House, the unofficial foreign ministry and symbolic center of power of the nascent Palestinian government. Outraged Palestinians pledged to defend their institutions in the hotly disputed city.

At daybreak Friday, dozens of heavily-armed Israeli police were blocking all the streets leading to the building and did not permit anyone to enter, even local shopkeepers.

Smiling about the Israeli flag flying over the entrance in place of the Palestinian flag, a paramilitary border policeman carrying an M-16 assault rifle said Orient House had been turned into an Israeli police post. He refused to give his name.

However, West Bank police commander Shahar Ayalon said police have "no intention to maintain a presence inside the buildings or the offices."

Internal Security Minister Uzi Landau visited the site at midmorning Friday. Reporters were kept away.

Communications Minister Reuven Rivlin said the takeover was meant to restore Israeli control over east Jerusalem. "This is just the beginning. We no longer trust the Palestinians to keep law and order," he told Israel television.

Palestinians warned that the move against their institutions would intensify the conflict.

Hussein al-Sheik, a leader of Yasser Arafat's Fatah movement in the West Bank, said, "This is a very serious, very dangerous step." He said that Israeli Prime Minister Ariel Sharon is "sending a message to the whole world that his policy is occupation by force."

Israel captured east Jerusalem in the 1967 war, along with the West Bank, Gaza Strip and other territories. Unlike the other areas, Israel annexed east Jerusalem days after the war and has declared ever since that the whole city is Israel's capital.

The Palestinians claim east Jerusalem as the capital of the state they hope to create. The issue of Jerusalem was one of the main sticking points in peace talks that collapsed in January.

The building, set back from a side street in east Jerusalem, operated as a hotel for decades. But it was closed and decaying when Faisal Husseini, scion of a Palestinian family that owned the hotel, turned it into a study center, then gradually transformed it into his political power base.

Defying Israeli objections, Husseini hosted foreign diplomats at Orient House, including senior officials, and frequently met journalists there. After Israel and the Palestinians began signing interim peace accords in 1993, Husseini became the senior Palestinian official in Jerusalem.

Husseini died May 31 of a heart attack during a visit to Kuwait.

Quoting the interim accords, the Israelis said Yasser Arafat's Palestinian Authority was not permitted to conduct political activities in Jerusalem. Periodically, Israeli governments closed various Palestinian offices around the city, but closed Orient House temporarily only once, in 1997.