PERSPECTIVE ON THE MIDDLE EAST : A Palestinian Season of Gloom : Coming on top of everything else, The U.S. decision to drop its dialogue with the PLO just adds to frustration.

Mohammad Tarbush is a Geneva-based investment banker and chairman of the board of trustees of the United Palestinian Appeal, a Washington-based charity

America's decision to suspend talks with the Palestine Liberation Organization could not have come at a worse time for the Palestinians, particularly the more than 1 million who have endured 20 years of Israeli occupation.

Their fears, inflamed by the massacre of seven Palestinian workers last month in the Israeli village of Rishon le Zion, were deepened by the formation of the most extremist government in Israel's 42-year history. (Indeed, the announcement of Yitzhak Shamir's new government caused several Palestinian leaders to cancel a hunger strike they had called to protest the massacre. "No one was paying attention," they complained.)

The despair of those in the occupied territories is representative of the general feeling of frustration among Palestinians everywhere. And at least three sets of reasons have contributed to the accumulation of their fears:

--Before the massacre, Israeli-Palestinian relations already were hopelessly deadlocked over the failure to get the peace process moving. The Bush Administration was perceived by the Palestinians as having failed to convince the Shamir government to adopt the American peace plan. While more than 50% of the Israeli public was expressing approval for direct negotiation with the PLO, no Israeli government emerged with the capability to translate that popular will into reality. Israeli leaders were seen as playing for time. If they could withstand American pressure for another year or so, the attention of the Bush Administration would turn to the next presidential elections. Or, if enough Soviet refugees could significantly change the demographic map of Israel, then followers of Likud and similar political parties would have an added argument for holding on to the occupied territories.

Meanwhile, the intifada no longer stirs the Israeli conscience. The violent repression of stone-throwing Palestinian youth is accepted as the cost of living with the uprising.

--Palestinians, aware of the diminishing symbolic value of their stones and occasional Molotov cocktails, looked to the PLO leadership outside the territories and to the Arab world for a serious mobilization of human and economic resources to help bring peace to their forsaken land. They found an Arab world still submerged in factional conflicts. Promises for financial aid remain largely unfulfilled. It is estimated that actual disbursements to Palestinians under occupation amounted to less than 20% of the $300 million annually pledged by Arab leaders at their 1988 Algiers summit, when they declared their commitment to support the Palestinian uprising with "all possible means." Last month's meeting of Arab leaders in Baghdad must have brought further discouragement.

--As the Israeli novelist, Amos Oz, recently wrote in the Washington Post, the twin monsters, fanaticism and indifference, still roam around Israeli society. Many Palestinians feel that while Israeli leaders promptly condemned the Rishon le Zion murders, Israelis were largely indifferent. Their suspicions are confirmed by a report on the massacre published last month in the Israeli daily Yedioth Abronoth in which Israeli journalist Yigal Sarneh wrote:

"I waited at the Rishon le Zion junction for two hours and did not see signs of sorrow on the faces of passers-by. An Israeli car blew its horn joyfully, the driver making a V-sign . . . .

"At 11 o'clock, a tractor belonging to the municipality of Rishon le Zion arrived and with it an Arab young man carrying a broom. 'Where do I have to clean?' the tractor driver inquired. His companion, an inhabitant of Gaza, swept the blood away and bits of brain . . . at 11:15 a.m., an Israeli car, a red Autobianci, stopped by the murder scene. A happy looking youth got down. When he saw the blood patch on the red soil, he began to dance on it. 'Why only seven?' he said, laughing, before going away."

So the Israeli-Palestinian situation is grim. Yet President Bush and Soviet President Mikhail S. Gorbachev all but ignored this burning issue at their latest summit. The two leaders seemed to leave the ground clear to extremists of both sides, who must be having a field day.

How long will it be before fanatics succeed in dragging the region into an all-out Arab-Israeli war? With the lethal and destructive weapons now available, the outcome can only be catastrophic. Indeed, can even the newly found and still fragile Soviet-American detente withstand a large-scale flare-up in such a sensitive and crucially important part of the world?

America is uniquely qualified to contain this explosive situation. Enough Palestinian, Arab and, I am sure, Israeli leaders believe that Washington is sincerely searching for a peaceful settlement of this painful problem. But the composition of the new Israeli cabinet must make the American task even more difficult. Alas, the Bush Administration could not insist on the exclusion of known extremists from the new Israeli government the way it asked Yasser Arafat to dismiss an extremist from the PLO Executive Committee!

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