PLO's Arafat retreats. Group's hard-line stance could hurt leader and harm the chances for Mideast peace conference

The Palestine Liberation Organization's new-found unity could cost Yasser Arafat, its chairman, his most important Arab ally and further narrow chances for renewing a Middle East peace process. During the week-long meeting of the Palestine National Council (PNC) - the de facto Palestinian parliament in exile - Mr. Arafat renewed his grip on the Palestinian nationalist movement by restoring the unity that the PLO lost four years ago in Lebanon's rubble. He succeeded in bringing pro-Soviet factions back under the PLO's umbrella and in retaining the dominant role of his Al-Fatah faction.

To achieve this, however, Arafat was forced to retreat from his efforts to involve the PLO in negotiating an end to the Arab-Israeli conflict.

The PNC's abrogation of its Feb. 11, 1985, accord with Jordan at the start of the meeting was no surprise. Relations between the PLO and Jordan have deteriorated for more than a year, ever since Jordan's King Hussein publicly blamed the PLO for the failure of the joint Jordanian-Palestinian peace initiative.

But the PNC's adoption of a resolution restricting contacts with Cairo and implying condemnation of Egypt for signing its 1979 peace treaty with Israel was a surprise, a particularly unpleasant one for Egyptian President Hosni Mubarak.

By agreeing to back away both from Egypt and Jordan, Arafat may have made his revolution more dependent than ever on the Soviet Union, Mideast observers said.

Arafat himself seemed to bolster that assessment by reportedly sending a message to Mikhail Gorbachev during the PNC, asking the Soviet leader to persuade Syria to reconcile itself with the PLO. Syria is the Soviet Union's most important ally in the Arab world and Arafat's most formidable foe.

One of the more intriguing questions being asked in Middle East capitals in the wake of the PNC is what the Soviet Union will do next. Moscow worked hard to reconcile Arafat's mainstream Al-Fatah with the pro-Soviet Damascus-based factions. But Gorbachev seems also to be pushing hard for the convening of a Mideast peace conference at which the Soviet Union will have a chair. The Soviets have held a series of meetings with Israeli officials in the past year, and have been told repeatedly that Israel will never attend a conference that includes the PLO as an independent delegation.

Arab, Israeli, and United States diplomats all say it is unclear to them how the Soviets intend to reconcile the seemingly contradictory goals of a unified, strengthened PLO and the convening of a peace conference that Israel and the US will attend.

The most pressing problem facing Arafat now, however, is how either to prevent an open split with Cairo or to mend his still badly tattered fences with Syrian President Hafez Assad.

The PLO has always survived by balancing one Arab state against another. Since Arafat and Mr. Assad split in 1983, Arafat has developed a close relationship with President Mubarak and used Egypt as a counterweight to Syria and an intermediary with the Americans, Jordanians, and Israelis.

It was therefore with great reluctance that Arafat acquiesced to the demands of hard-line leaders George Habash and Nayef Hawatmeh that contacts with Cairo be restricted and that the concluding resolution adopted by the PNC would imply condemnation of the Egyptian-Israeli peace treaty.

There was still no official Egyptian response yesterday to the PNC's action. But unnamed PNC delegates were quoted by reporters in Algiers as saying that Mr. Mubarak sent Arafat a harsh message Saturday. Mubarak reportedly warned that pressure on Cairo to abandon the peace treaty with Israel would lead to a break in relations between Egypt and the PLO. The Egyptian press already has begun a campaign against the PLO for its supposed ingratitude to Egypt.

Most of the other resolutions adopted by the PNC were routine. The Palestinians pledged to continue armed struggle against Israel. They again rejected UN Security Council resolutions 242 and 338, the two resolutions that Israel, the US, Jordan, and Egypt accept as the basis for a Mideast peace conference. The two resolutions enshrined the concept of trading territory for peace, but the PLO says it rejects them, because they make no mention of the Palestinian people or their need for a state.

The PNC also called for the establishment of a Palestinian state on the West Bank and in Gaza, with Jerusalem as its capital. That resolution brought a sharp response from Israeli Prime Minister Yitzhak Shamir, who condemned the Palestinians' desire to ``rob'' Jerusalem from the Jews. Both Mr. Shamir's nationalistic Likud bloc and Foreign Minister Shimon Peres's Labour Party saw the PNC as confirming Israel's argument that the PLO is not a fit partner for negotiations.

Shamir saw the PNC as further decreasing chances of the Mideast peace conference that he opposes being convened. But Mr. Peres contended that the PLO's return to its hard-line policies will make it easier for West Bank Palestinians to join King Hussein in participating in an international peace conference.