NEWS ANALYSIS : Palestinians Discover Cost of Gulf War Stance : Middle East: Support for Iraq has weakened their diplomatic position in making moves for peace talks.

During springtime a year ago, Palestinians were counting on Secretary of State James A. Baker III to fight on their behalf for someone with a Jerusalem address to take a place at proposed one-on-one peace talks with Israel.

This week, they are begging Baker to let any Palestinian who has ever made a home in Jerusalem take part.

What a difference a war makes, especially when you choose the losing side.

Palestinians in general, and the Palestine Liberation Organization in particular, are dealing from a position of weakness that was aggravated by their backing for Saddam Hussein and Iraq in the Persian Gulf War. Not only did the Palestinians suffer a public relations debacle, but their cause has been set back in a variety of concrete ways, including a weakening of their diplomatic position.

The condition is reflected in Baker’s advice to Palestinian negotiators Sunday: “You have to compromise. You’re the weak link.”

“After the war, everything changed,” Mahdi Abdel Hadi, a prominent Palestinian political theorist, said Thursday. “Now, we are paying for it.”

The price is being felt not only at the negotiating table but also on the ground, where Palestinians are seeing their land disappear in the relentless Israeli program of settlement building. “Peace talks? Yes, why not?” asked Ibrahim abu Neim, a construction worker in the Jerusalem neighborhood of Umm Tubas. “Nothing can be worse than this.”

He gestured across a gulch to a tree-crowned hill of rocky land that belonged to him and several other villagers. A month and a half ago, the land was seized by the Israeli government and earmarked for a new settlement. Since the outbreak of the Gulf War, thousands of acres in occupied land have been confiscated to make way for Israeli communities.

The Bush Administration has not openly punished the Palestinians for siding with Iraq, although the PLO is far from being able to regain the prize of direct contacts with Washington. Direct communication ended two summers ago, when the PLO authorized a raid on an Israeli beach.

Palestinian clout has diminished in other ways. The PLO is unwelcome in Egypt, the most populous Arab country, and wealthy Saudi Arabia has cut off funding to the organization. Both nations, which fought against Iraq in the Gulf War, support President Bush’s peace formula of parallel talks between Israel and Arab governments and Israel and Palestinians.

Unlike the situation in past crises, there is no place to turn for alternate backing. Syria, once the leader of the so-called rejectionist Arab states, has signed onto the idea of talks. Battered Iraq is out of the picture. The Soviet Union, once the haven for PLO militancy, is a co-sponsor of the Bush talks.

“The PLO is isolated. Others are calling the tune,” said Abdel Hadi.

Palestinians have been crippled by their mass expulsion from Kuwait, a place where more than 300,000 made a living as administrators, doctors, lawyers, merchants and just about every other job category in the oil-rich state.

The 3 1/2-year-old Palestinian uprising in the West Bank continues without great force. Stoning incidents are still common, and there has been a rise in the use of firearms. Gangs of youths drown the revolt in intra-Arab violence.

Last year, the Palestinians seemed to hold a winning hand. Baker was irritated with Israeli Prime Minister Yitzhak Shamir’s reluctance to implement a plan for Palestinian elections. The plan was authored by Shamir himself, and Washington was trying to arrange talks to organize the vote.

Baker pressed for including a Palestinian from Jerusalem and an exiled Palestinian in the talks as well, and Shamir aborted his own plan. He looked like the villain.

This year, Shamir is glowing in the warmth of world reaction to his wartime restraint in the face of Iraqi missile attacks. Military aid has flowed from the United States and Europe. More is promised to help Soviet immigrants unless Shamir shows undue intransigence in resisting the peace talks.

The altered balance is reflected in the triangular talks among the United States, Israel and the PLO over the peace plan. The Palestinians are clinging to their stand on Jerusalem representation as a symbol that the Arab-populated eastern sector of the city will be negotiated out of Israeli hands. The PLO is also demanding to be present at the talks.

The Shamir government opposes both demands and is pressing Washington to openly side with Israel on the issues. Israel rejects the PLO both as a terrorist organization and because of its campaign for an independent state.

In the meantime, Israel is concentrating instead on sowing the West Bank and Gaza Strip with new settlements. Foreign Minister David Levy told a closing session of Parliament on Wednesday that peace talks will not stand in the way of the program, which he called a “right.”

The opposition Peace Now movement released a government report Thursday purporting to show that the Housing Ministry plans to build 30,000 new houses in the West Bank and Gaza by the end of 1992. Previously, the ministry had announced plans for 13,000 in order to raise the Israeli population of the land by 50%, to 150,000.

“This government is constructing as much as it can while trying to conceal the amount it actually builds,” charged Eran Hayet, a Peace Now spokesman.

The Housing Ministry said Peace Now distorted its findings but did not come up with its own version.

Umm Tubas, where Ibrahim abu Neim mourned the loss of a hill, found itself within the city limits in 1967, when Israel annexed Jerusalem.

The land takeover is part of a plan to plant outlying Jerusalem neighborhoods from the city limits to Bethlehem, within the West Bank. Another new community is planned to stretch south of Bethlehem as far as the Efrat settlement.

The land taken from Umm Tubas is largely uncultivated, but its value lies in its role as a kind of savings bank for the villagers, Abu Neim said. It is the only place where many own new houses. “I have six children. This is where I could give each of them a place to build their home,” Abu Neim said.

Israel has taken about 10 acres from Abu Neim. The villagers have gone to court to try to get the confiscations reversed.

“It will be hard,” he said. “Bush cannot stop Israel from putting settlements everywhere. How can we?”