  We have obtained a high spatial resolution X-ray image of the nucleus of NGC
1068 using the High Resolution Camera (HRC-I) on board the Chandra X-ray
Observatory, which provides an unprecedented view of the innermost 1 arcsecond
radius region of this galaxy. The HRC image resolves the narrow line region
into X-ray emission clumps matching bright emission-line clouds in the HST
[OIII]5007 images and allows comparison with sub-arcsecond scale radio jet for
the first time. Two distinct X-ray knots are revealed at 1.3-1.4 arcsecond
northeast and southwest of the nucleus. Based on the combined X-ray, [OIII],
and radio continuum morphology, we identify the locations of intense radio
jet-cloud interaction. The [OIII] to soft X-ray ratios show that some of these
clouds are strongly affected by shock heating, whereas in other locations the
jet simply thrusts through with no signs of strong interaction. This is further
strengthened by the presence of a kT~1 keV collisionally ionized component in
the ACIS spectrum of a shock heated cloud (HST-G). We estimate that the
kinematic luminosity of the jet-driven shocks is 6x10^{38} erg/s, a negligible
fraction (10^{-4}) of the estimated total jet power.
