Decision Is Hailed by Arabs as ‘Historic’ Step : Jerusalem, Taken by Surprise, Reacts With Disbelief

The U.S. decision to talk with Israel’s archenemy, the Palestine Liberation Organization, caught the Israeli government by surprise at a time when the country’s political panorama already is in disarray, officials said early today.

Just hours before Secretary of State George P. Shultz made the dramatic announcement in Washington, Foreign Ministry officials were expressing relief that the Reagan Administration had responded negatively to peace overtures made by PLO leader Yasser Arafat at this week’s U.N. General Assembly meeting in Geneva.

Express Disbelief

When word arrived that the United States had reversed itself--on the basis of remarks made by Arafat to reporters Wednesday--some expressed disbelief.

“We did not expect this,” Foreign Ministry spokesman Alon Liel said. “We did not believe that Washington would take a press conference so seriously. After all, it was just a day after the U.N. meeting. How can a press conference supersede a U.N. speech?”

The spokesman said the government will study Shultz’s explanations and respond more fully later today. Israel was not consulted on the move, he said.

Another Foreign Ministry official said Israeli observers in Geneva had assured the government here that nothing Arafat had said would change the longstanding U.S. resistance to talking to the PLO.

“I guess they were wrong,” the official said.

He added that the Israeli Embassy in Washington was notified of the American decision shortly before it was made public. The embassy condemned the U.S. action in a statement, declaring:

“We regret the United States’ decision to establish contact with the PLO. We do not consider that this step will advance the peace process in the Middle East.”

Will Press Own Policy

The embassy added that Israel will try instead to implement its policy of getting neighboring Jordan and Palestinians who are not PLO members to talk peace.

Since mid-November, Israel has undertaken a laborious diplomatic campaign to blunt the impact of a PLO peace offensive. The PLO proposals included calls for negotiations, with the goal of establishing an independent Arab state alongside Israel.

The PLO initiatives came on behalf of Palestinians who have been battling Israeli rule on the West Bank and Gaza Strip since late 1987. A new state would probably encompass most, if not all, of the territory and relieve the Palestinians of Israeli military occupation.

In its diplomatic counterattack, Israel gave special attention to persuading the United States to rebuff PLO requests to open talks.

On Tuesday, Prime Minister Yitzhak Shamir appealed to Washington to refrain from ever meeting with PLO officials. Shamir repeated his contention that the PLO is a terrorist organization whose sole aim is to destroy Israel.

On Wednesday, Foreign Minister Shimon Peres, who is more dovish, told Israel’s Parliament that the PLO had failed to meet American conditions for opening contacts. These conditions included the explicit recognition of Israel, the acceptance of U.N. resolutions setting outlines for peace talks and the renunciation of terrorism.

Moreover, Peres continued, even if the United States agreed to contact the PLO, Israel would not follow suit.

“We did not bind ourselves to those conditions, nor did we say that if the three are accepted, everything is clear,” Peres declared.

A 1975 U.S. Pledge

The first two conditions were part of a 1975 U.S. pledge designed to encourage Israel to pull back from Egyptian land it had occupied during the 1973 Yom Kippur War. The condition on terrorism was added later by Washington.

The U.S.-PLO rapprochement has caught Israel at a delicate political moment, after inconclusive elections last month left the government virtually rudderless. In recent weeks Shamir, who heads the Likud Party, has been bargaining with Peres and his Labor Party on terms for forming a coalition government.

Likud narrowly edged Labor in the elections but failed to win enough seats in the Knesset, or Parliament, to rule on its own. About a third of the seats were won by an array of minor parties.

During the election campaign, Shamir took a hard-line stand on peace talks, insisting that Israel would not give up any part of the West Bank or Gaza.

Peres Urged Conference

Rival Peres instead ran on a platform of convening an international conference to settle the conflict with the Palestinians. Moreover, he even held out the possibility that PLO-linked delegates might join the talks if elected by Arabs residing in the occupied territories. Peres favors a joint Palestinian-Jordanian confederacy to rule over parts of the West Bank and Gaza while Israel retains land deemed necessary to its security.

Observers here were split on how the U.S. decision might affect the coalition talks, however. Some said they felt that Shamir might now try to shore up his hard-line position by forming a government of right-wing and religious-party representatives. At the same time, they added, Peres may be tempted to go into the opposition on the assumption that Shamir will not be able to forge a workable coalition.

“They may take it to the brink,” a senior Labor official said.

Other observers said they felt the PLO challenge would increase pressure on Peres and Shamir to join forces.