Palestinian terrorists have injected poisonous doses of mercury into Israeli oranges in an obvious attempt to create havoc with Israel's economy by damaging sales of its biggest foreign-exchange earner.

Reports from the Netherlands and West Germany that people have become ill with mercury poisoning after eating Israeli oranges caused an alert throughout Western Europe yesterday.

A group calling itself the "Arab Revolutionary Army Palestinian Command" claimed responsibility for this new type of terrorism.

There was no evidence of any similar problems in the United States. Spokesmen for the Agriculture Department and Food and Drug Administration said shipments of Israeli oranges were scheduled to arrive in the United States later this month and would be carefully checked by U.S. experts.

The new tactics of terrorism directed against Israel's citrus exports surfaced other five Dutch children were hospitalized for mercury poisoning after they ate Israeli oranges. The children's stomachs were pumped and they were sent home.

West German police subsequently reported that "a pea-sized quantity" of mercury was discovered inside Israeli oranges at Darmstadt. The fruit was part of a consignment sold to grocery stores.

The sale of Israeli oranges was stopped yesterday by trading companies and supermarkets in several European countries.

The governments of West Germany and the Netherlands said yesterday that they have received letters from Arab Revolutionary Army Palestinian Command that read, in part:

"It is not our aim to kill the population, but to sabotage the Israel economy which is based on suppression, racial discrimination and colonial occupation." The Palestine Liberation Organization in Beirut denied any PLO involvement in the terrorist scheme.

A letter addressed to 18 European and Arab governments received by the Reuter news agency in London said that poison had been injected by "oppressed Palestinian workers" in Israeli-occupied territories.

Israel's Citrus Marketing Board quickly issued a statement saying that "a few cases of oranges containing metallic elements were discovered . . . [the tainted oranges] were detected by the consumers themselves. Investigations have proved that this act was actually committed in Europe."

Israeli officials sought to remove the specter from the public mind of Arab workers in the orange groves of Israel insidiously sinking hypodermic needles filled with mercury into export oranges, H.D.S. Greenway of The Washington Post reported from Jerusalem.

It appeared likely that the oranges were poisoned at the Dutch port of Rotterdam, through which much of Israeli citrus exports pass before reaching supermarkets in northern Europe.

Israeli officials said that the poisoned fruit had "visible external sign on the peel" and that had they been poisoned in Israel they would have deteriorated considerably by the time they reached Europe.

The latest terrorist action was taken seriously by the Israelis. According to Israeli diplomats, Israel earns about $450 million in foreign exchange from its agricultural exports. More than half of this amount comes from citrus.

Israel's diamond industry - which accounts for roughly 40 per cent of $3.1 billion annual industrial exports - is the second largest foreign currency earner. Although the total turnover of the diamond industry is about $1.2 billion, Israeli companies have to pay nearly $1 billion for purchases of rough diamonds.

Israeli officials here as well as American analysts believe that the main goal of the orange poisoning effort was psychological. The terrorists apparently want to create widespread public apprehension about Israeli citrus products in Europe and thus disrupt trade patterns.

An Israeli government spokesman last night expressed the hope that the citrus trade would resume in full strength after a few days.

The Arab Revolutionary Army first became known last October when it claimed responsibility for the killing of a United Arab Emirates government minister at Abu Dhabi airport.t said at the time that the intended victim had been Syrian Foreign Minister Abdel Halim Khaddam, who escaped unhurt.

Last night, another PLO statement rejected the tactics of food poisoning, saying that "such activities are inconsistent with the aims and norms" of the PLO and were designed to "shake the support and confidence won by thePLO among world public opinion."