The Palestinian terrorist leader [WORD ILLEGIBLE] Daoud grew into a major international controversy today as the French presidency disavowed any role in the detention, calling it a "police decision," and Israel told France that it intends to seek Daoud's extradition.

While the French government sought to remove all political significance from the surprise apprehension of the man accused of planning the attack that led to the death of 11 Israeli athletes at the 1972 Olympics in Munich, the Palestine Liberation Organization and some Arab spokesmen condemned the arrest.

West German authorities said they would decide shortly whether to seek their own extradition of Daoud.

While a West German request would be difficult for France to ignore, informed sources here said, the Israeli request would have little chance of being granted. This is partly because of France's generally generally pro - Arab stance and because the Israeli request is expected to be based largely on an unusual and untested 1973 law that attempts to extend Israeli jurisdiction to include crimes committed against its citizens beyond Israeli borders.

Washington Post correspondent H. D. S. Greenway reported from Jerusalem, however, that there was speculation that Israel's legal brief against Daoud might include crimes committed on Israeli soil.

Arab ambassadors to France met in an unusual session at the Arab League headquarters here to discuss the arrest, and the PLO asserted afterward that the diplomats had pledged "their firm determination to follow this affair with the closest attention."

A PLO official in Paris was quoted as warning that "the Palestinian revolution has the force to defend itself" and the Algerian newspaper El Moudjahid, close to that country's government, said France was "baring its anti-Arab face."

Privately, however, well-informed sources indicated that the governments of Egypt, Syria and Saudi Arabia - which are committed to another effort at a Middle East peace settlement that would be opposed by the Palestinian terror groups - were not as upset by the detention of Daoud as were more radical Arab states.

Confusion mounted today over why Daoud, who was traveling on an Iraqi passport under a false name, was arrested at a Paris hotel Friday, one day after he had been received at the French Foreign Ministry as part of a PLO delegation.

The delegation came to Paris to attend the funeral Saturday of Mahmoud Saleh, a Paris-based Palestinian radical who was shot and killed by two unknown terrorists last week.

While the Foreign Ministry refused comment, other sources said it was clear that the ministry knew Daoud's identity at the time of their meeting.

The arrest, was made by agents working for the Direction de la Surveillance du Territoire (DST), France's main counterespionage agency, which has had a long and bitter feud with the Foreign Ministry.

French official sources indicated at first that the arrest had been made as the result of an arrest warrant relayed through Interpol from the Bavarian State Justice Ministry.

But West German officials said today that the warrant had not been issued until after Daoud had been taken into custody and the Germans informed of the arrest by the French.

Government sources also said that Interior Minister Michel Poniatowski, who was away from Paris for the weekend, was not informed of the arrest until Sunday.

The DST falls under Poniatowski's control. But its reputation for rightist political leanings sparked speculation here that Daoud's arrest had been mounted to embarrass the Foreign Ministry or to torpedo the intermediary role President Valery Giscard d'Estaing's government has quietly been attempting to carve out for itself between Israel and the Palestinians.

The DST's past coordination with Israeli counterintelligence triggered speculation here and in Jerusalem that Israeli agents may have had a role in fingering Daoud.

On at least three previous occasions, France has quickly released Palestinian terrorists, evidently to avoid becoming the target of raids to free them. France has close ties to a number of Arab countries.

But the French attitude toward terrorism has hardened significantly since the hijacking to Uganda of a French jetliner by pro-Palestinian guerrillas in July.

Israel has requested the French authorities to detain Daoud under "provisional arrest" for 60 days - the maximum period provided for under the terms of Israel's extradition treaty with France in which to prepare and present evidence for extradition.

Israel is in close contact with West German authorities and Israel's intention to seek extradition is not designed to compete with any Bonn request, officials said. The Israeli move, they said, was designed to lessen the chances that Daoud might escape prosecution altogether.

An Israeli legal advisor told Israeli radio that after having read the treaty with France, he could not see "any basis for France to refuse his extradition."

He dismissed the possibility of Daoud's crimes being considered as political by the French. The Luxembourg Convention, which the European Council adopted last year, specifically excluded murder and kidnaping from being considered political crimes, he said.