Next Step : Past the Intifada: Area Focus Shifts : Warlike rhetoric, a regional arms buildup and a new surge in Islamic fundamentalism have brought the Middle East situation full circle.

On a rough stone wall in the old market area of Nablus, someone has scrawled the invitation, “Welcome, Saddam Hussein.”

No one expects the bellicose leader from Iraq to come soon, if ever. But the small message underscores an accelerating change of focus in the Israeli-Palestinian conflict. After more than two years of holding center stage in the Middle East, the Palestinian uprising is giving way to fast-moving events in the outside Arab world. At the same time, Palestinians are wondering whether the revolt may have reached the limit of its ability to move events.

Besides warlike rhetoric, a regional Arab arms buildup and a new surge of Islamic fundamentalism have helped shift attention away from the continuing struggle over the Israeli-occupied West Bank and Gaza Strip.

In a sense, the change brings the Middle East situation full circle. The intifada was considered a turning point precisely because it redefined what had long been termed the Arab-Israeli conflict. When Palestinians in the territories rose up starting in December, 1987, their action served to refocus the debate on its original, Palestinian-Israeli dimension.

Returning to the more diffuse “Arab world versus Israel” context has implications for all the players.

The Israeli government is urging Palestinians to take the opportunity to discuss its offer of limited self-rule and not hitch their aspirations to pan-Arab militancy or the Palestine Liberation Organization, which Israel views as an outside force.

For the United States, the change in focus challenges its policy of concentrating on first resolving the Palestinian issue as a step to wider regional stability. Should the old quest for a comprehensive, multi-partner peace effort be revived, with the Palestinians merely a part of a larger constellation?

Palestinians, meanwhile, are just beginning to feel the new climate and are undecided on what to do.

“There is a certain diffusion of interest in the current stalemated situation,” said Sari Nusseibeh, a public spokesman for the intifada. “There is a lack of direction.”

“We are at a stalemate. Our activities have not been exploited properly to bring peace,” added Said Kanaan, a prominent PLO contact in Nablus.

There is heated discussion on which way to go with the revolt in order to regain the initiative. Palestinians speak of taking up arms, although they are not likely to have enough to dent the overwhelming strength of the Israeli army. Meanwhile, small-scale terror attacks have become more numerous, including a series of pipe bombings in Jerusalem. In one incident, three bystanders at a bus stop were lightly wounded.

“The talk about escalation is an expression of pure anger,” commented Nusseibeh.

At the other end of the spectrum, public leaders speak of setting up a provisional Palestinian government in the territories in order to organize peaceful protest and funnel resources to activists. But the effort runs against the trend toward fragmentation of the revolt.

Not only do PLO factions vie for support from the mother organization, but the PLO is at odds with groups outside its control in the West Bank and Gaza.

In Nablus, considered one of the core cities of the intifada , a factional dispute between Fatah, the main PLO faction, and Hamas, a Muslim group opposed to the PLO’s dominance, recently burst into the open. Fatah activists circulated a leaflet implying that a Hamas official is homosexual. In retaliation, two Hamas militants raided a house, stabbing and badly wounding two Fatah supporters who were asleep inside.

Both Palestinian views of what to do next are aimed at breathing life into the intifada, which sometimes appears to be running on automatic pilot. The throwing of stones is still its main expression, but other modes of rebellion compete, sometimes at cross-purposes. The unabated killing of collaborators, for instance, contrasts with leadership pleas for peaceful civil disobedience.

It is not only the ebb and flow of the always loosely run uprising that has changed, but its international context.

When the intifada began nearly 31 months ago, the wider Arab-Israeli conflict appeared to be on hold. Israel’s main enemies were occupied elsewhere or were recovering from the fatigue of other wars.

The bloody conflict between Iraq and Iran was just ending. Syria was tied up in Lebanon. Jordan, never the most independently aggressive of Israel’s adversaries, was eager to court the Western world. It was one of several Arab states that appeared to be willing to live with Israel once some breakthrough toward peace could be made. Egypt maintained its decade-old peace treaty with Israel.

“There was an illusion created that nothing was going on in the Arab world. No one paid attention to military buildups. Everything was focused on the intifada, “ said Dore Gold, an analyst at the Jaffee Center for Strategic Studies in Tel Aviv.

That all has changed. A massive wave of immigration from the Soviet Union to Israel is building and, in the Arab view, can only mean fuel for what they see as Israeli expansionism. Prime Minister Yitzhak Shamir only encouraged their concerns by proclaiming that a big immigration required a big Israel.

The collapse of the Soviet Bloc in Eastern Europe marked the end of moral and military support for Arab nations at odds with the United States and Israel, so they have begun to draw together in a renewal of defunct alliances.

Jordan’s King Hussein appears especially nervous over right-wing rumblings from Israel that he should be overthrown and his country, which already has a Palestinian majority, turned into the much-discussed Palestinian state. The monarch has turned to Iraq for backing.

Finally, fundamentalist Muslims made strong electoral showings in Jordan and Algeria, offering a source of inspiration to Palestinian Islamic movements already competing with the PLO for leadership in the West Bank and Gaza.

“There is a sense that the world is collapsing beneath the feet of the Arabs,” said Mark Heller, an analyst at the Jaffee Center.

The surge in fundamentalist politics is a particular wild card, Heller added. “There is some question whether the fundamentalists calculate the costs and risks of their actions,” he said, noting Iran’s unpredictable course.

Into this climate of nervousness steps Saddam Hussein. This spring he turned heads by threatening to wipe out half of Israel if Israel attacked him, and he revealed a store of chemical weapons. Indications are that he is searching for a variety of means to deliver them--rockets, jets, cannons.

In his bid for Arab world leadership, Saddam Hussein is well placed. He came out of the war against Iran with the region’s biggest army and has oil revenue to sustain it.

The PLO, having failed to get peace talks with Israel under way and now once more cut off from dialogue with the United States, has sidled up to Iraq. Palestinians in the West Bank and Gaza have begun to cry for help from Arab governments, even to the point of invasion. Palestinians praise efforts by PLO guerrillas to attack Israel by sea, even though the attacks have historically produced little but bad publicity for the Palestinian cause. Psychologically, at least, this suggests a change from the go-it-alone Palestinian attitude that was so strongly reinforced in the early months of the intifada ; a change back to relying more on the outside Arab world as their only hope.

Israel responds by reminding Saddam Hussein that it can defend itself and by trying to direct its diplomacy--and that of its main ally, the United States--away from the present Palestinian issue and toward resolving the looming conflict with the Arab world. In a letter to President Bush last week, Shamir pointed to the hostile Arab world as Israel’s main preoccupation, not the Palestinians.

“Israel has always said the real danger is from the Arab states,” said analyst Heller. “It wants to be reassured by the Arab world that there will be peace before dealing with the Palestinians.”

Which way will the United States direct its efforts? The Bush Administration has been trying to remove the Palestinian-Israeli conflict from the broader Middle East equation. It has repeatedly--but unsuccessfully--pressed Shamir to take steps toward peace talks with Palestinians as a first move toward reducing regional tensions.

Some Israeli analysts wonder if now is not the time for Washington to try a dual approach: Continue to press Shamir to take up talks with Palestinians, but also open avenues with the Arabs over urgent issues, notably arms control.

The goal would be to keep events from getting unintentionally out of hand. “There is danger in miscalculations and misperceptions in this kind of heated climate,” Heller notes.

Concluded Sari Nusseibeh: “Sometimes an atmosphere of danger can be created and leaders can become captive of it. And war can be the result.”