ABU DAOUD, ALLEGED leader of the Munich Olympic massacre, is in Algeria today, courtesy of the govenment of France. He had slipped into Paris last week to attend a slain colleague's funeral. French officials knew exactly who he was; he was even receive at the Foreign Ministry. They admitted him out of the familiar considerations which led France some years ago to mortgage its foreign policy to Arab oil and Arab markets - no matter that the actual fruits of this bootlicking policy are nonexistent. In fact, it was only by inadvertence that Mr. Doud was even briefly inconvenienced. A "Black September" collegues, the mysterious "Carlos," had murdered two officers of a French police branch in 1975 and the branch, tipped off by the Israelis, thought Mr. Daoud was fair game under the law. He was arrested. Within a few days the French government, moving with a haste that prompted German and Israeli extradition request, arranged for a court to let him go free.

The wonder is not that a suspected terrorist was sent off to plan who knows what other crimes - oh, how the French will pine if the future victims are Israelis. (One past victim of Mr. Daud's organization was the American ambassador in Khartoum; he was killed while being held hostage against the release of Mr. Daoud from a previous incarceration, in Jordan in 1973.) The wonder is that he was arrested and held at all. As it was, the Arabs had only to crook a finger at this formerly self-respecting nation, one which in its Gaulist years had elevated sovereignty virtually to a religion, to indice it to consummate its own humiliation. France wished to avoid complicating its relations with its Arab friends. It also wished to slough off the burden of holding a prisoner whose comrades might be tempted to take additional hostages to free him. All this seemed more important to Paris than acting with dignity.

Say what you will of the French government - it is not easily shamed. Counterattacking against the criticism it expected to received (and is receiving) for releasing Mr. Daoud, it suggests that Israel had a suspect motive in wanting him arrested and publicly tried. That motive was not simply to combat terrorism, the French suggest, but to tar all Palestinians with a terrorist brush and thereby to blunt the building pressures to seat the Palestinians at a Geneva peace conference. The suggestion overlocks, however, the larger reality that there is much that is consistent - between fighting terrorism and searching for peace. France may have opted out of both activities. There is little reason to think it will be sorely missed.