The Palestine Liberation Organization signaled today that it was backing away from its insistence on representing the Palestinian people at a Geneva peace conference.

The shift by the PLO, apparently made under pressure from major Arab nations, could bring to an end the long diplomatic struggle over Palestinian representation at Geneva. Israel and the United States have refused to deal with PLO on the ground that it is a terrorist organization committed to the destruction of the Jewish state.

Sayed Kamal, a member if the PLO political department who often speaks for the leadership, emerged from a meeting of Arab foreign ministers here to announce PLO willingness to send "representatives of the Palestinian people" to Geneva under a formula that would reaffirm the PLO's right to an invitation but would not specify that the representatives themselves be from the PLO.

Kamal said the basis for this acceptance should be adoption by the U.N. Security Council of the Soviet - U.S. working paper in Geneva, issued Oct. 1, that said any settlement should insure the "legitimate rights of the Palestinian people" but did not say there should be PLO officials at Geneva.

While some Palestinians have indicated in the past that they might accept some such compromise, this appeared to be the most specific proposal yet offered. It comes in the context of a trend among the Arabs to yield to Israeli intransigence on the subject of the PLO.

The Arabs have long recognized the PLO as the "sole legitimate representative" of the Palestinian people.

A week or so ago it appeared that this impasse could torpedo any prospect of Geneva conference. Kamal's statement is the most dramatic in a series of recent clues indicating flexibility in the Arab position.

Other Palestinian delegates here said he was expressing only his personal opinion, not PLO policy. The foreign ministers, furthermore, appeared to repudiate his position by adopting resolutions reaffirming their support for the PLO as the exclusive agent of the Palestinians and demanding that it be invited to Geneva.

Nevertheless, observes here agreed that neither the statements of the other Palestinians nor the ministers' resolutions actually excluded the formula given by Kamal.

This trend toward a new Arab position surfaced last week when President Anwar Sadat of Egypt said he would not allow quarrels over procedure to get in the way of going to Geneva.

Sadat restated his loyalty to the PLO cause but said the place to uphold that was at Geneva, not in preliminary skirmishing. He went further in a talk with a U.S. congressional delegation, suggesting that some respectable and clearly non-terrorist figure, such as an American university professor of Palestinian origin, could be the Palestinian representative.

Although that proposal came as a surprise to delegates here, the overall thrust of Egyptian strategy over the past year has been consistent - yield to Israel on procedural issues, while proclaiming a desire for peace, in order to show that it is the Israelis, not the Arabs, who are blocking the resumption of peace talks.

The morning, Yasser Abd Raboo, head of the PLO Information Department, described Sadat's proposal as "ridiculous" and said there was "nothing to it." He did not deny, however, that some compromise was under consideration and in any case, observers here pointed out, he represents a hardline rejectionist fraction of the PLO that opposes any negotiated settlement with Israel.

Abdul Mohsen Abou Maizer, official spokesman of the PLO executive committee, said there had been "no decision of the executive committee" on this point. He said the committee was bound by the resolutions of the Palestine National Council, a Palestinian parliament in exile,insisting on the PLO right to participate in any conference where the future of Palestine is discussed.

In the elliptical natural of Palestinian pronouncements, however, he stressed the right to participate, not he actual participation - to position apparently consistent with statement Kamal issued later in the day.

Kamal spoke in Arabic and there is no official translation of his remarks. English-speaking Arab journalist covering the conference offered the following consensus translation:

"We consider the minimum basis on which the PLO agrees to the participation of representatives of the Palestinian people at Geneva is the U.S. Soviet joint statement and this statementshould be considered as a document of the Security Council." He added the matter of inviting the Palestinians as part of an Arab delegation.

Delegates at the conference expressed pessimism that this or any formula offered by the Arabs would be accepted by Israel but it is not clear what the Arabs' next move will be. The Egyptian delegation announced that Sadat will go to Damascus Wednesday to confer with Syrian President Hafez Assad in their latest effort to agree on a joint Arab negotiation strategy.