In the most visible sign yet that the rebuilding of Lower Manhattan has begun, workers yesterday began the first step in erecting a new skyscraper on the site where 7 World Trade Center once stood.

In recent days, Larry A. Silverstein, the developer who owned the 47-story tower, received word that his insurance company would not contest his $861 million claim, clearing the way for construction. Yesterday, Mr. Silverstein had workers begin erecting a construction fence around the site, on the north side of Vesey Street.

Mr. Silverstein's insurance company, Industrial Risk Insurers, had been investigating whether a 6,000-gallon oil tank that had been installed in the building in the late 90's had significantly contributed to the collapse of the tower on Sept. 11. The oil tank was installed for the Giuliani administration's emergency crisis center there.

Both Mr. Silverstein and state officials had been worried that if the insurance company refused to pay the claim, the project would falter, sending a gloomy message about the future of Lower Manhattan.

But the two sides resolved the issues amicably. Dean Davison, a spokesman for the insurance company, said that Industrial Risk was ''moving toward payment of the claims.''

Mr. Silverstein said excavation would start in the coming days, while pile-driving and a formal groundbreaking ceremony would occur sometime in June.

''It's resolved,'' Mr. Silverstein said yesterday morning with a sigh of relief. ''A lot of things are beginning to happen.''

According to executives who have been briefed on Mr. Silverstein's negotiations with the insurance company, there is one remaining issue: the developer wants Industrial Risk to pay the claim in one lump sum, rather than in periodic installments, so that he, in turn, can pay off his existing mortgage at 7 World Trade Center. Either way, the executive said, Mr. Silverstein should not have a problem financing the new tower.

Mr. Silverstein's latest plan calls for a somewhat taller but less bulky skyscraper designed by Skidmore Owings & Merrill. The location of the tower will be shifted slightly to the south to allow for the restoration of Greenwich Street. And the project will accommodate a Con Edison substation. Two substations that relayed electricity to much of Lower Manhattan were destroyed Sept. 11 when 7 World Trade Center collapsed.

The project still requires approval by the Port Authority of New York and New Jersey, which owns the land. But Charles A. Gargano, vice chairman of the Port Authority and New York's top economic development official, has long encouraged Mr. Silverstein to rebuild 7 World Trade Center. The developer also said he would continue to work with the Lower Manhattan Development Corporation, the agency created to oversee the reconstruction of Lower Manhattan. Although it has no formal role in the project, the corporation has successfully pressed the developer and Con Edison in the reconfiguration of the building.

''This shows that you can get good things to happen in Lower Manhattan by working together,'' said Louis R. Tomson, president of the Lower Manhattan Development Corporation.

Robert Yaro, president of the Regional Plan Association, said that many civic groups were still hoping that Mr. Silverstein had come up with an environmentally responsible design that included reductions in energy use, elimination of toxic materials and the use of natural light and air.

At the 16-acre World Trade Center site on the south side of Vesey Street, the development corporation is playing a more critical role. The Port Authority owns the land and Mr. Silverstein controls the lease for that site as well. But the development corporation is charged with the politically sensitive task of creating a memorial for the 2,824 people killed at the trade center and taking into account a public consensus for what should be built on the land.

Mr. Silverstein backed off on his original proposal to simply rebuild the 10.5-million-square-foot trade center, with either two or four large towers, after community groups, civic organizations and the families of victims of the terrorist attack objected. In recent weeks, Mr. Silverstein has kept silent about his design for the site, while the development corporation has been drawing up its own plans.

The Port Authority and the development corporation are reviewing applications from 13 groups of urban planners, architects and transportation experts interested in become consultants on a development plan. The Port Authority will select the winning proposal in two weeks and develop a plan by July, a speedy timetable that has drawn criticism from some who say it does not leave enough time to create an imaginative design.

Work is moving forward on rebuilding the PATH train tunnels and a subway station destroyed in the attack. But that is far less visible than a new tower.

State and city officials considered the rebuilding of 7 World Trade Center to be less politically sensitive. It was important, they said, to rebuild the electrical substation by July 2003, and to reassure financial firms that had fled the area that Lower Manhattan would be rebuilt quickly.

''This will be a concrete and positive statement about the viability of new commercial redevelopment in Lower Manhattan,'' said Carl Weisbrod, president of the Alliance for Downtown New York.

Photo: Where 7 World Trade Center stood, a new skyscraper is to rise. Yesterday, workers put up a construction fence and sent a message of confidence in Lower Manhattan. (Andrea Mohin/The New York Times)(pg. B1) Map of New York City highlighting Ground Zero, and the proposed tower and substation: A reconfigured tower will allow part of Greenwich Street to be restored. (pg. B7)