Palestinian leader Yasser Arafat condemned U.S. policy in the Middle East yesterday and called for increased guerrilla operations against Israel.

The chairman of the Palestin Liberation Orgainizations was cheered by about 10,000 Palestinians at a rally in Beirut as he hurled defiance at President Carter - who confers with Saudi Arabia leaders and Egyptian President Anwar Sadat this week.

In Cairo, Sadat hinted there is room for compromise in the near deadlock between Egypt and Israel over the issue most critical to Arafat, establishment of a Palestinian homeland on the West Bank of the Jordan River.

Sadan has advocated an independent state with a federal or confederal link to Jordan, a position refected by Israeli Prime Minister Menahem Begin, who says he will accept only limited self-rule for Arabs in the Israeli-occupied West Bank and Gaza.

Begin offered that position as a concession at the Christmas summit with Sadat, who found it unacceptable.

In an interview in the Cairo newspaper A1 Akhbar yesterday Sadat addressed the issue this way: "We should renounce the policy of either getting everything or rejecting everything. We should get what we can get until we can get all that we want."

Sadat appeared in restating his own position to stress more the link to Jordan than the independence of a future Palestinian state.

"I have been calling for the past four years for a link between Jordan and the envisaged Palestinian state," he said.

President Carter, who is to meet with Sadat in Aswan on Wednesday, said in Warsaw at the outset of his current tour that he favored a non-in-dependent Palestinian homeland linked to Jordan.

Sadat reiterated in another interview, with the weekly October magazine that Carter's position could create "severee difficulties," but the Egyptian leader said he remianed optimistic over the outcome of his negotiations with Israel.

Today's PLO rally included the biggest display of Palestinian military strength since the civil war in Lebanon ended more than a year ago.

The procession has led around a sports stadium by guerrillas carrying pocket launchers and riding in vehicles mounted with heavy machine guns.

"When Carter says no to a Palestinian state, he says no to peace in the Middle East . . . Peace and stability through the Palestinaian revolution," Arafat said.

In a reference to talks between the U.S. President and King Hussein of Jordan in Tehran, he said: "Carter and all his agents in the Arab world that they cannot defeat our revolution."

In a reference to talks between the U.S. President and King Hussein of wasted his time. Hussein can give him nothing."

Arafat also replied to recent statments by U.S. national security adviser Zhignien Brzezinski says "bye-bye PLO." To him I say goodbye to America in the Middle East."

In an annual address isued by the Palestine news agency W.A.F.A. Arafat said: "Let us escalate our military struggle against the Zionist enemy."