AMMAN, JORDAN -- All the world is watching the Persian Gulf crisis with a mixture of fear and dread -- with the possible exception of homeless Palestinians. After 23 years of living under Israeli occupation, the Palestinians see the standoff in the Gulf as the best hope of solving their own problems.

Saddam Hussein was the first opportunist. He thought he could gain some advantage by invading and pillaging Kuwait. Now the Palestinians figure if some good is to come out of the mess, it might as well come their way.

The excitement of the Palestinians living in Jordan gives the impression of cock-eyed optimism in the face of crisis. Street vendors are doing a brisk business in Amman selling posters of Saddam. One poster pushes his call for a holy war against Israel and the West. It shows pictures of Saddam holding a semiautomatic rifle, King Hussein of Jordan firing one, PLO leader Yasser Arafat smiling and the Dome of the Rock, a sacred Moslem shrine in Jerusalem.

In conversations with us, Palestinians routinely linked the withdrawal of Iraqi forces from Kuwait with the withdrawal of Israelis from the West Bank and Gaza Strip. For them, there is no question about that. The only thing they question is why the United States is so fired up about the Iraqi occupation of Kuwait when it has done nothing to get Israel out of the territories it occupies.

The linkage has an ignominious origin. Ten days after the Iraqi invasion, a desperate Saddam first raised it more as a diversionary tactic than as a show of empathy for the Palestinians. Since then, it has taken on a life of its own.

Last month, Arafat's right-hand man, Bassam Abu Sharif, sent a letter marked "top secret" to Secretary of State James Baker in advance of the Helsinki conference between George Bush and Mikhail Gorbachev. Arafat has allied himself publicly with Saddam, but the letter stated a strong opposition to the occupation of Kuwait. Arafat is mindful of the thousands of Palestinians in Kuwait and Iraq. And he can't forget the fact that in the weeks before the invasion, he transferred PLO funds and personnel to Iraq in hopes of setting up a new headquarters there. The PLO was wearing out its welcome in Tunisia, and Saddam was happy to provide a new home.

It was phenomenally bad timing for Arafat, but now he is trying to make the best of a bad situation, casting himself as the peacemaker.

Arafat's aide stated emphatically in the secret letter, "The Palestine Liberation Organization did not support the invasion of Kuwait. The PLO has, in fact, explicitly and repeatedly stated its opposition to usurpation, by force, of any country toward another."

Abu Sharif added that the PLO "maintained a neutral public attitude for a main reason: to be able to mediate between the parties concerned."

That's where the opportunism comes in. Arafat hopes to save the day for Saddam and get a coattails deal for the Palestinians while he's at it.

The PLO wants Iraqi withdrawal from Kuwait and self-determination for the Kuwaiti people, the letter said. This inherently means, according to Abu Sharif, that the world "will confer to find a global solution to all the problems of the Middle East. Paramount among these is the Palestinian problem. The implementation of the United Nations Security Council Resolutions 242 and 338 (which require Israeli withdrawal) is essential to preserve the coherence of the position of the international community.

"Israel's rejection of these proposals and opposition to their implementation ... has always been and will continue to remain a major obstacle to justice, stability and peace in the Middle East."

The PLO letter advises against a military solution in Kuwait and adds, "This is also the way we think about resolving the Israeli-Palestinian conflict."

Perhaps the letter had some effect. President Bush nudged Palestinian optimism along a bit last week in his address to the United Nations General Assembly when he said that "opportunities" to solve the Arab-Israeli conflict could come as a bonus of the Iraqi withdrawal from Kuwait.

Some U.S. foreign policy and intelligence analysts are saying that it is the only non-military solution to the Gulf standoff that would give Saddam a face-saving way out.