Royal Watch: Those relentless British tabloids, always on the lookout for cracks in the Charles and Diana marriage, have been following Princess Diana about, and apparently the pressure caused her to burst into tears when she was photographed recently on a London street with a longtime male friend. Diana reportedly begged a photographer to give her his film after he took a picture of her with Maj. David Waterhouse, an officer in the prestigious Life Guards regiment.

The racy London paper People reported that Waterhouse had been pretending to run down Diana with his car when the picture was taken. Yesterday, Buckingham Palace confirmed that the princess had attended a private dinner with Waterhouse but declined further comment. One Conservative lawmaker has complained to the British Press Council, the industry's self-policing agency, that the press should confine its coverage of Diana to her public life. "This continued and relentless pursuit, even persecution, of the princess of Wales could break her spirit," he said.

Out and About

If Sen. Paul Simon wins the Democratic nomination for president, he might want to give some credit to the singer with the same name. Campaigning away out in Lamoni, Iowa, Simon the candidate spoke to a group of students last night at Graceland College. Since singer Paul Simon's hit album is named "Graceland," the students there decided to award the Illinois Democrat a "Paul Simon Graceland Tour" T-shirt ...

Chrysler Corp. Chairman Lee Iacocca and his wife Peggy have reached a tentative divorce settlement that apparently will end their brief marriage amicably. The Iacoccas married in April 1986 and split the following October. According to one unconfirmed report, Peggy Iacocca will receive a $2.7 million settlement, while a source close to the settlement said the figure was not that high. Iacocca, 63, can afford a generous settlement. He reportedly earned $20.58 million in salary, bonuses and stock options last year. When The Detroit News reached Iacocca at home Sunday for comment on the settlement, he said he was too busy watching football on television to talk ...

Alan Dershowitz, the Harvard Law School professor who successfully defended Claus von Bu low against charges that he tried to kill his wife, has joined with a group of other lawyers in an effort to bring the first kosher delicatessen to pastrami-deprived Cambridge. "People say, 'Cambridge will never be a major-league city without one. It's culturally deprived without a kosher deli,' " Dershowitz said. Maybe that's why Harvard students often look so forlorn. What's life without kosher pickles? ...

Nobody has ever said that Madonna and her actor husband Sean Penn are the most lovable of couples, but former Beatle George Harrison, who had to work with them in his ill-fated film "Shanghai Surprise," remembers them with something far less than fondness. In an interview in the London weekly magazine Woman, Harrison, now a successful film producer, said of the widely panned movie, "It was a bloody nightmare ... We got the wrong script, the wrong director and the wrong stars. The stars' behavior was pretty bad. They were just very unhappy with each other. They weren't happy working. I haven't seen them from that day to this" ...