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A sigh of relief - and joy - heard round the Arab world. AFTER SHULTZ'S SURPRISE

``We've been waiting for this for so long,'' a prominent local journalist says. ``When I first heard about it I thought it was a joke.'' ``Look, George Shultz has made me a real person,'' laughs an official of the Palestine Liberation Organization (PLO), holding out his arms.

In this tranquil Arab capital, the sudden United States decision to open a dialogue with the PLO has generated relief and excitement.

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But in a noisome Palestinian refugee camp 20 miles away, where the grinding realities of life smother such enthusiasm, upbeat responses to the US decision are in shorter supply.

``Sure, I guess it's a good thing,'' says the matron of a family who has been shuttled through five refugee camps since fleeing Israel in 1948. ``But if someone has taken your land, how can you be happy?''

``If America had really wanted peace before now, it could have had it,'' adds a Palestinian doctor, a refugee from Ramle, near Tel Aviv. ``The problem is that America didn't believe in us from the beginning. I'm still not convinced that America really wants a fair peace.''

Between these extremes, a cautious optimism, a hope tinged with realism, has settled over the Arab world as a new phase in Arab-Israeli relations begins.

``It was so wrong to pretend that 6 million people didn't exist. Now people can talk to each other,'' says a Jordanian official, who cried openly when he heard of the US decision. ``If this is genuine, I think it will open many new avenues to peace.''

``This is just excellent,'' echoes another Jordanian official with a sigh of relief.

The journalist, who is Palestinian-born, cautions: ``It gives great hope. But it also raises expectations so high. The US has now recognized the PLO; it will be much harder to get the Americans to recognize Palestinian rights to self-determination.''

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Neither does the US decision necessarily presage US recognition of the Palestinian state declared last month by the Palestine National Council (PNC) in its meeting in Algiers, other Arab sources point out. Secretary of State Shultz said in his Wednesday announcement that the US did not recognize the declared Palestinian state, though that would be a topic of future discussion.

``It was not an objective by itself for the Americans to take a position to talk to us,'' says Ibrahim Abu Ayash, a member of the PNC. But ``if the step had not been taken it would have been a disaster for the peace process.''

Government and private analysts here speculate that the moderate tone of Yasser Arafat's address before the United Nations General Assembly was one factor but not the most important factor prompting the sudden US turnabout.

Another was concern over the US's growing diplomatic isolation as country after country, including key US allies like Britain, became convinced of the sincerity of Mr. Arafat's recent peace overtures.

Most important were warnings from key Arab leaders of what the US position was doing to undermine moderates, both within the PLO and in the Arab world.

Egyptian President Hosni Mubarak delivered a warning personally in a highly unusual telephone appeal to Mr. Shultz from Cairo on Wednesday.

A PLO official, Asad Abdul-Rahman, notes that without the US decision to talk to the PLO, Arafat would have been the target of intense criticism. Radical elements within the PLO would have blamed him for having gambled and lost in his ploy to win Western backing with a program of political compromises, including recognizing Israel, embracing UN Resolutions 242 and 338, and renouncing terrorism.

With Washington's decision to open a dialogue with the PLO, Arafat has clearly demonstrated the diplomatic utility of the PLO's softer line.

One result: Arafat's stature has been enhanced enormously. Thus the role of Arab governments, on which the PLO chairman has been so heavily dependent for so many years, will be ``marginalized,'' says a Palestinian source. ``They will now have to follow the lead of the PLO.''

One concern expressed here is that extremist elements might initiate terrorist acts - say, in Europe or the US - to throw the pending US-PLO dialogue off track.

But PLO sources say that despite pockets of internal resistance, confined to extremists like Syrian-backed PLO renegade Abu Musa, Arafat will now be able to press ahead with a solid mandate within the PLO.

For one thing, these sources say, Arafat's Geneva remarks did not go beyond the consensus position hammered out at the recent PNC meeting in substance.

Yet they did clarify that position - thereby winning US support. In a press conference Wednesday, Arafat said the PLO ``totally and absolutely'' renounces all forms of terrorism and recognizes Israel's right to live in peace and security .

``Arafat can now go forward, and those who matter inside the PLO will go definitely and solidly behind him,'' says Dr. Abdul-Rahman, a member of the PLO's Central Committee. ``Some will make [negative] statements, but just for the record, they will not matter.''

Arafat's PLO and offshoots

The Palestine Liberation Organization was established in 1964 to act as a quasi-governmental body for the Palestinian diaspora.

After the 1967 Arab-Israeli war, the PLO adopted a stance favoring guerrilla activities against Israel; insisted upon greater independence from Arab states; and, for the first time, called for the establishment of a Palestinian state in which Muslims, Christians, and Jews would have equal rights.

Over the decades, it has splintered into at least eight factions over differences in aims and tactics.

Yasser Arafat, who was elected PLO chairman in 1969, heads the largest faction, the mainstream Al-Fatah. Fatah and two other factions - the Popular Front for the Liberation of Palestine, led by George Habash, and the Democratic Front for the Liberation of Palestine, led by Nayef Hawatmeh - make up about 80 percent of the PLO's strength.

Both the PFLP and the DFLP are backed by Syria - which staunchly opposes the idea of concessions to Israel's existence. In February 1987, Syrian forces reportedly raided the Damascus offices of the DFLP in an attempt to prevent its reconciliation with Arafat's bloc.

Dr. Habash's PFLP, the most influential group after Fatah, aims for a Palestinian nation founded on socialist and Marxist principles. Responding to the US's willingness to talk with the PLO, Habash said: ``Although the US says that initiating the dialogue does not entail recognition of Palestinian rights to ... an independent state, we still welcome the latest development.''

Six other PLO splinter groups form the Palestine National Salvation Front. The front was created in March 1985, a month after Jordan's King Hussein and Arafat signed an accord to jointly work toward Arab-Israeli peace. (Hussein later anulled the accord.) Included in this group are Palestinian leaders such as Abu Musa and Abul Abbas who are sought in connection with various terrorist hijackings and killings.

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