Building on the model of Russell and Hall for the emergence of life at a warm submarine hydrothermal vent, we suggest that, within a hydrothermally formed system of contiguous iron-sulfide (FeS) compartments, populations of virus-like RNA molecules, which eventually encoded one or a few proteins each, became the agents of both variation and selection. The initial darwinian selection was for molecular self-replication. Combinatorial sorting of genetic elements among compartments would have resulted in preferred proliferation and selection of increasingly complex molecular ensembles--those compartment contents that achieved replication advantages. The last universal common ancestor (LUCA) we propose was not free-living but an inorganically housed assemblage of expressed and replicable genetic elements. The evolution of the enzymatic systems for (i) DNA replication; and (ii) membrane and cell wall biosynthesis, enabled independent escape of the first archaebacterial and eubacterial cells from their hydrothermal hatchery, within which the LUCA itself remained confined.