TO UNDERSTAND Egypt's current rage at Cyprus, you must first understand the softness Cyprus has long felt for the Palestinians. Cyprus is the lone country that accords the Palestine Liberation Organization full diplomatic status. When the Lebanese war made it impractical for Palestinian guerrillas to train in Lebanon, some switched to Cyprus. They seem to come and go easily. An important segment of the local political community is sympathetic to them.

The Egyptian commando force, arriving at Larnaca airport Sunday without clear notice or coordination to hunt the two Palestinians who had just publicly slaughtered an Egyptian editor, surely brought a good part of its grief upon itself. Cyprus had its sovereignty to protect, not to speak of its president, who was in the control tower. But Cyprus Airlines had flown in a dozen of PLO leader Yasser Arafat's elite guard from Beirut to help the Cypriot National Guard cope with the emergency, and in the heat of it these PLO men (in mufti) joined the guard in repulsing the Egyptian attack on the two terrorists. The attack was a fiasco, and 15 Egyptians died. One does not have to endorse Anwar Sadat's charge that the Cypriot government "colluded" with the PLO to whistle at the cozy way they got along.

There's no proof that either Cyprus or even the PLO sponsored the assassination of the editor or schemed to let the assassins escape. But Egypt's confidence in Cyprus is not likely to be soon restored short of the Cypriot government's consent, so far not forthcoming, to hand over the murderers to Cairo. As long as the Cypriots keep them, and especially if the pair are not promptly tried by procedures showing no tinge of political favor, the bad blood suddenly stirred between Cyprus and Egypt will remain. Cyprus, moreover, must address the concerns raised in many other countries by the Larnaca incident.

The more lingering significance of this episode, however, is likely to be found in the resentment raised among Arabs against Palestinians -- the more so that the slain editor was widely known in the Arab world for his novels and film scripts. "Egypt is defending the Palestinian cause everywhere while the Palestinians are going to nightclubs and offering themselves for hire as assassins and terrorists," Mr. Sadat declared, expressing what seems to be a popular sentiment in many Arab countries.

It is, in some respects, a bum rap. Some Palestinians may be guilty as charged, but others surely long to be led in a peaceful way to, in Jimmy Carter's nice choice of words, participate in the determination of their own future. These Palestinians -- we would guess they constitute a majority, and a largely silent one -- must cringe as the terrorist fringe repeatedly tars their image and discredits their cause. Many of them turn to the PLO, but that organization has been cruelly unresponsive: Politically and organizationally, it has been unable to conquer its doubts and divisions and to join in the peace-seeking process begun by Mr. Sadat and joined in by Israeli Prime Minister Menachem Begin.

We hope that the Larnaca incident will help ease the Palestinian movement along the way to the realization that its best prospects lie in moderation -- moderation of means as well as ends.