To the hordes of tourists strolling along the Champs Elysees and milling about the sun-drenched Arc de Triomphe, it seemed like a perfect Paris afternoon. Shortly after 5 o'clock, however, that picture-postcard scene turned hellish: a homemade bomb stuffed into an outdoor trash can near the Place de l'Etoile erupted with a deafening noise, shrouding the area with white smoke and peppering the air with shrapnel. "There was a formidable explosion and this cloud of smoke that choked us," says Jose Martins, 48, a Portuguese worker who had just bought a news paper at a nearby kiosk. "It gave off so much heat that I thought I was burning. People were lying on the ground all around us."

A dazed young man leaned against a railing, his white trousers blown to tatters and his thighs smeared with blood. A wounded child sat shrieking in a baby carriage. A woman in an orange blouse sprawled over a bench. Another woman, bleeding profusely, lay motionless on the ground. Partly because of the rapid response of French emergency units, no one died in the attack. But 17 were wounded, including 11 foreigners and four children. Coming in the wake of the July 25 explosion that killed seven and wounded 85 in an underground commuter-train station at the Place Saint-Michel, last week's blast suggested to many that Paris may be reliving the notorious September 1986 terrorist wave, in which 11 people were killed and 160 injured in five separate bombings by an Iranian-backed Lebanese group. "Now that we have seen two attacks," says French terrorism expert Xavier Raufer, "it seems logical that we should expect more."

As French vacationers prepare to return from the beaches at the end of August, a new source of anxiety has been added to a growing litany: higher consumer taxes, threatened labor unrest, a stubborn 11.5% unemployment rate, and international opprobrium and trade boycotts caused by President Jacques Chirac's decision to launch a series of underground nuclear tests in the Pacific starting next month. Chirac, who got off to a fast start with a series of economic and political initiatives after last May's election, could see that much of his credibility depended on how his government handled the terrorist threat.

For police investigators still stymied by the July 25 bombing, the explosion last week provided a potential trove of new clues. "One isolated incident can surprise us," says Alain Brillet, 48, head of the National Autonomous Federation of Police. "But if they do it again, the clues accumulate, and the perpetrators can make mistakes." Investigators note striking similarities between the two attacks. Both occurred at the peak of the rush hour in areas heavily traveled by tourists; both devices were made of blue, Belgian-manufactured camping-gas canisters filled with liquid explosives and set off by detonators powered by nine-volt batteries.

Fortunately for last week's victims, there were two crucial differences: 1) the latest bomb appeared to be less powerful, and 2) it exploded outdoors, whereas the previous blast took place in an enclosed underground station, which multiplied its impact. French police are nonetheless convinced that the Place de l'Etoile bomb was "meant to kill," since it was packed with roofing nails and bolts, which turned it into a veritable antipersonnel grenade.

It could be that the terrorists' biggest mistake was to plant the latest bomb in daylight, exposing themselves to potential witnesses. French police have collected accounts from more than 40 people, many of whom handed over film or videotapes taken at the scene both before and after the explosion. One Paris resident who rode by the site on a bicycle around 5 p.m. told police he saw two "North African-type" individuals throw an object into the trash can shortly before it exploded. Other witnesses reported seeing a gray Mercedes with diplomatic plates speed away from the scene after the blast. Police stopped two such cars in the vicinity, both belonging to the Iranian embassy, but the occupants were ruled out as suspects. For its part, the Iranian embassy condemned the bombing "in the name of God."

French officials say last week's attack, like its predecessor, appears to be the work of Islamic militants opposed to Algeria's military-backed government. Police note that the fabrication of bombs from empty gas canisters is identical to techniques used by fundamentalist Armed Islamic Group (G.I.A.) guerrillas in Algeria. French intelligence services have seized clandestine videotapes in which G.I.A. instructors provide step-by-step les sons in making such devices. Another sign of Algerian fundamentalist responsibility is found in El-Ansar, an underground G.I.A. newspaper published in Sweden, which lists the Saint-Michel bombing "in the French Crusader capital of Paris" among the group's exploits.

Possible motives for anti-French strikes include Paris' economic aid to the Algiers government, periodic crackdowns in France against suspected fundamentalist supporters and revenge for the French assault on a hijacked airbus in Marseilles last December that left four G.I.A. terrorists dead. The G.I.A. vowed at that time to "avenge our martyrs." Now all of France wonders whether the time for that vengeance has arrived-and how long the terror will last.