PLO Uses Inducements, Warnings in a Bidding War for Loyalty of Palestinians : Mideast: The move counters a U.S.-led drive to recruit and finance new leaders in a bid for peace.

Alarmed by efforts of the United States and its Arab allies to recruit and fund new leaders in the Israeli-held West Bank and Gaza Strip, the Palestine Liberation Organization is using checkbook diplomacy of its own to hold on to followers, PLO affiliates here said Friday.

The sources, who have direct knowledge of the flow of money from outside the West Bank and Gaza to Palestinian organizations, described a kind of bidding war that has gotten under way in the wake of the Gulf crisis. Although the potential for a power struggle exists, pro-PLO activists insist that the PLO has an advantage. Even though the group is strapped for cash, the mood among grass-roots activists is such that anyone seen to be a mercenary at the service of the United States runs the risk of physical danger.

“The PLO can buy followers, and it can apply other pressure. The atmosphere does not favor such manipulation,” said an activist in understated tones. The seriousness of the threat was evident in the unwillingness of interview subjects to give their names when discussing the potential for a leadership fight.

U.S. officials traveling with Secretary of State James A. Baker III through the Middle East this week told reporters that Saudi Arabia and other Arab states are actively looking for PLO substitutes to enter into regional peace talks with Israel. The Arabs are willing to nurture new loyalties by funding Palestinian institutions and individuals, the Americans said.

The Arab effort fits in with Washington’s quest to find a West Bank and Gaza peace panel acceptable to Israel. The Israelis reject the PLO because of its terrorist history and because it demands statehood in the combined West Bank, Gaza and Arab neighborhoods of East Jerusalem.

The Bush Administration and allied Arab governments are displeased with PLO chief Yasser Arafat for giving moral support to Iraq’s Saddam Hussein during the Iraqi invasion and occupation of Kuwait. Saudi Arabia and Kuwait, both major sources of money in the Middle East, cut off funding to the PLO last year.

An alternative Palestinian leadership that theoretically would be acceptable to Israel would also for the first time be embraced by Arab states.

The potential targets for the patronage campaign are many, PLO supporters admit. Clan heads, educators, businessmen, trade unionists, women activists and others all qualify for the title of leader in a fragmented Palestinian society. “If Leader was a heading in a Palestinian yellow pages, the entries would fill half the book,” joked one Palestinian analyst.

In a time of economic hardship, all could use some cash, he added.

Yet PLO followers seemed confident that even if the Arab states break off a leadership group, it would still have to work with the organization.

“The PLO is established. It would take someone else 20 years to try to compete,” insisted a top PLO activist in Ramallah, a West Bank university town north of Jerusalem.

Several pro-PLO analysts noted that it is not clear whether key Arab states are ready to jettison the PLO or merely assert influence over it. Although officials from Egypt’s embassy in Tel Aviv have canvassed Palestinians on their willingness to quit the PLO, Egypt still permits PLO officials to use Cairo as a platform for making policy statements.

Syria appears more eager to overthrow Arafat than try to erase the PLO as a force in the West Bank and Gaza, where Damascus has little influence. Syrian leader Hafez Assad is pressing for the return to the PLO fold of anti-Arafat dissidents whom he bankrolls.

Saudi Arabia is also more eager to get rid of Arafat than to produce a soft leadership in the West Bank and Gaza, PLO supporters here assert, and they view the funding issue as a kind of pressure to force Arafat to step down.

The activists noted that the top organized alternative to the PLO in the occupied land is Hamas, a Saudi-backed Islamic group that is uncompromising in its attitude toward Israel. Hamas wants to rule what is now Israel, the West Bank and Gaza by Islamic law. “Hamas is hardly a group that could sit at a regional conference designed to work out peace agreements with Israel,” a Palestinian political analyst remarked.

Ambiguities in the potential for new leadership were evident in the first foray of a Palestinian group to Egypt and Saudi Arabia. Early in April, the three-man team, headed by Gaza lawyer Faiz abu Rahme, went searching for economic aid--the kind the Americans say will buy loyalty.

In Cairo, a PLO official gave his blessing to the trip, and Abu Rahme made no special effort to distance himself from the organization. In the past, Abu Rahme was affiliated with the Fatah wing of the PLO, the faction headed by Arafat himself. So far, underground PLO leaders in the West Bank and Gaza have made no criticism of his trip. The PLO went so far as to praise the Saudi decision to continue funding Palestinian projects even though the PLO itself was denied money.

Palestinian observers here expressed greater concern about a different kind of leadership problem: the growing gap between old-time public figures and the shadowy and frustrated younger activists who keep alive the uprising against Israeli rule in the occupied land.

Youthful grass-roots leaders are critical of efforts by veterans to reach accommodation with the United Nations and Israel through talks. Their present target is the so-called Jerusalem Group of middle-aged leaders headed by Faisal Husseini, the most prominent of public spokesmen for the uprising. Husseini led two delegations and claimed to be representing the PLO in meetings with Baker during the secretary’s recent pair of visits to Israel.

PLO street activists criticized the talks and have been calling for a step-up in violence as a means of ending Israeli rule. “These people are probably beyond the reach of Saudi money,” said a veteran activist close to the Jerusalem group. “They may also be beyond the control of the PLO.”