NEWS ANALYSIS : Ties Between Israel, Jordan Leave Arafat Odd Man Out : Mideast: United front cuts into PLO chief’s ability to play politics. He vows to fight any deals on Jerusalem.

Israel’s rapidly improving relations with Jordan are adding to Yasser Arafat’s woes as he struggles to create a functioning Palestinian government in Gaza and the West Bank town of Jericho.

For decades, Arafat has survived as leader of the Palestine Liberation Organization by deftly picking his way through the sometimes deadly maze of inter-Arab politics. Even when he made missteps, he was always able to recover by playing one Arab state off another.

But now, the onetime guerrilla leader faces Jordan’s King Hussein and Israeli Prime Minister Yitzhak Rabin, two men who share the common goal of ensuring that the Palestinian entity will pose neither an economic nor a security threat to either of their nations. Arafat, who suspects that the two also are determined to prevent the birth of a Palestinian state, is finding it difficult either to drive a wedge between the two leaders or to find an Arab partner capable of counterbalancing them.

Last week was nightmarish for Arafat. First came the spectacle of a beaming Hussein enjoying a hearty handshake on the White House lawn with Rabin before the two signed a declaration ending the state of war between Israel and Jordan. Arafat publicly praised the move but then expressed alarm over Israel’s recognition in the declaration of a special role for Jordan in maintaining the Muslim holy sites of Arab East Jerusalem.

The PLO leader was so infuriated by the declaration that he subsequently allowed his security forces to ban the distribution in Gaza, Jericho and East Jerusalem of two pro-Jordanian newspapers, a move that in turn raised a storm of protest from Palestinian intellectuals who complained that Arafat and his new government are anti-democratic.

But the PLO leader made it clear Monday that he will not step aside to allow Jordan and Israel to cut a deal on Jerusalem.

“For us, Jerusalem is one issue, one cause. It is not only a political issue, it is a sovereignty issue, it is an issue of holy sacred places for Christians and Muslims,” Arafat said in Gaza.

Arafat called on Israel to open talks immediately with the PLO on the future status of Jerusalem, although Israel and the PLO decided in September’s joint declaration to put off those negotiations to no later than May, 1996.

“If they have decided to start now, then we are insisting to start now,” Arafat said.

Israel immediately rebuffed the notion of opening talks soon with the PLO on Jerusalem’s fate.

“There is agreement that the issue is not discussed at this stage,” said Police Minister Moshe Shahal, who met Monday in Tel Aviv with Nabil Shaath, minister of planning and international cooperation for the Palestinian Authority, to discuss the release of Palestinian prisoners from Israeli jails.

“Jerusalem is under Israeli sovereignty and united. It has been so for 27 years and will remain so in the future,” Shahal said.

But the Israelis did meet Monday with PLO officials in Jerusalem for the first time. Negotiators for the two sides held talks on economic issues at a building owned by the Roman Catholic Church that lies on the dividing line between West and East Jerusalem. Palestinians saw this as a small victory, but Israeli officials dismissed the significance of the site.

Israel says that Jerusalem is its capital and will remain undivided. The PLO says it wants to make mostly Arab East Jerusalem, which Israel captured from Jordan in the 1967 Arab-Israeli War and later annexed, the capital of a future Palestinian state.

King Hussein, who traces his lineage back to the prophet Mohammed, claims a role in maintaining the Muslim holy sites nestled inside the walls of East Jerusalem’s ancient Old City. Jordan controls the trust that runs the Temple Mount, site of Al Aqsa, Islam’s third-holiest mosque. Hussein recently spent $6 million of his private funds to refurbish the mosque.

This week, Arafat is confronted with further evidence of the warming in relations between Israel and Jordan. Peace talks resumed between the two nations on their southern border Monday. And next Monday, Hussein and Rabin are hoping to meet again, to inaugurate a new border crossing between their nations just north of the twin ports of Aqaba and Eilat. U.S. Secretary of State Warren Christopher is expected to join them for a ceremony opening a crossing for tourists carrying passports from nations other than Israel or Jordan.

Israeli and Jordanian sources say they are making quick headway on issues ranging from sharing scarce water resources to offering joint tourist packages. Some West Bank Palestinians already have been granted licenses by Jordan to export to Israel.

Israel and the Palestinians also are immersed in talks, which began Monday in Cairo, on extending Palestinian self-government to include the entire West Bank. But those negotiations are moving slowly as the two sides haggle over taxation, education, health care and other bureaucratic matters.

And, ominously for Arafat, Gazans are beginning to grumble openly that the PLO has yet to make real improvements in their lives. PLO Labor Minister Samir Ghoshe said in an interview that unemployment remains at around 45% and acknowledged that he has no immediate solution to the problem.

Gazans from opposition factions and even within the mainstream PLO also openly complain about Arafat’s recent decision to appoint a municipal council for Gaza City that is heavy on Arafat supporters, light on opposition seats and conspicuously lacking independent-minded Palestinians.

The opposition has boycotted the council and called instead for early elections. The PLO says elections, tentatively scheduled for October, will be put off at least until the end of December.