Israelis celebrated their country's 40th anniversary under tight security Thursday, and Arabs threw a homemade explosive at soldiers in Bethlehem during PLO-ordered "Firebomb Day" in the occupied lands.

For a second day, the army barred the 1.5 million Palestinians in the occupied West Bank and Gaza Strip from entering Israel to prevent disturbances. It also barred journalists from most of the territories, where curfews were maintained over 23 refugee camps and towns for a fifth day. All told, more than 400,000 Arabs were living under curfew.In a special Independence Day interview, Prime Minister Yitzhak Shamir said nearly five months of anti-occupation violence appeared to be winding down and called on Arab activists to stop the rioting.

Shamir told Israel radio that Palestinian leaders' heads were "in the clouds. Their demands have reached the skies."

According to U.N. figures, 169 Arabs have died since the uprising began 19 weeks ago in the territories Israel seized in the 1967 Middle East war. Two Israelis also have been killed.

Despite the unrest, Israelis marked the holiday with picnics, hikes through the countryside and visits to army bases specially opened to the public.

In Jerusalem, President Chaim Herzog held a reception for veterans of the 1948 war in which Israel won its independence.

The 24-hour Independence Day festivities were launched on Wednesday night with a torch-lighting ceremony at Jerusalem's Mount Herzl.

Hundreds of thousands of Israelis then took to the streets to sing, dance and watch fireworks. In keeping with tradition, youths knocked passers-by over the head with plastic hammers and sprayed them with a dry foam.

Hundreds of soldiers patrolled the West Bank Thursday, including 16 soldiers outside the Dheishe refugee camp on Bethlehem's outskirts. Israelis were warned to be on the alert for suspicious objects during the holiday.

Most Palestinians stayed off the job, observing a general strike call from the Palestine Liberation Organization and underground leaders.

They had also been asked to throw firebombs at Israeli soldiers and in Bethlehem, Palestinians hurled a gasoline bomb at an Israeli patrol.

Troops responded with rubber bullets, breaking all the windows in one home, according to an AP reporter at the scene. The soldiers also fired live rounds into the air and lobbed tear gas canisters.

On Wednesday, the army established a new prison for Arab detainees north of Jerusalem to help incarcerate the 5,000 Palestinians arrested since the uprising began.

If was the fifth new Israeli prison established since the uprising began, according to the Palestinian human rights group Law in the Service of Man.