Though the circumstances were regrettable, Ambassador Andrew Young's resignation could still yield rich benefits if it focuses attention on his central point (on which he was correct and, hence, unforgivable) that no durable Arab-Israeli peace is possible without PLO participation in the negotiations.

President Carter should, when he took office, have ignored Henry Kissinger's secret, late-night promise that the United States would not negotiate with, or recognize, the PLO. For a great power to give a tiny nation a veto on its diplomatic freedom of action was not only grotesquely inappropriate, it interposed a major obstacle to effective peace-making, implying that the fate of 1.2 million Palestinians could be settled without the participation of their only valid spokesmen.

That the PLO is the only valid bargaining representative of Palestinian interests is overwhelmingly agreed in the West Bank and Gaza Strip. Because the Israeli army has never permitted political organization in the occupied areas and we cannot conjure up alternative Palestinian spokesmen by the unworkable Camp David procedures, we have no option but to engage the PLO's most moderate elements in conversations. We only stimulate neurotic violence when we refuse to talk, yet do nothing effective to block the Israeli government's stratagem of creeping annexation through new settlements.

Time is not standing still. Dangerous unrest is mounting in the occupied areas, whole Israel and the PLO wage increasingly violent warfare -- even on Lebanese territory with American-supplied weapons. Not only does such warfare offer no hope for peace, it shifts the Middle Eastern balance further against Israel. Burdened by the costs of maintaining a garrison state, of raiding and bombing the PLO and of occupying a population one-third as large as its own, Israel is moving inexorably toward economic collapse. With 80 percent inflation and a $4.5 billion balance of payments deficit, it survives on a United States dole, which for the last four years has run at a rate exceeding $5 million a day and will be swollen further by our underwriting of the Sinai withdrawal.

Since the status quo is unsustainable, the Begin government's obduracy is an exercise in self-deception. Military occupation of over a million Palestinians -- which has now persisted for 12 years -- is a colonial anachronism that must raise an acute moral issue for Americans concerned with human rights. Yet Israel could never afford to annex the occupied areas, as its settlement plans might suggest. The addition to its current Arab population of 1.2 million Palestinians would make Israel more than one-third Arab and, since Palestinians multiply twice as fast as Israeli Jews, the Arab element would soon equal 50 percent -- thus drastically distorting the concept of a Jewish national state. Finally, although some Israeli leaders may hope to squeeze out the Palestinians by preempting their lands and water supply, Israel's Arab neighbors would never permit further additions to the Palestinian diaspora.

But if the present course is a cul-de-sac, what is the way out? It is to adhere to two established principles of United States policy that, at the same time, are the key elements of a lasting Middle Eastern peace: We must assure the security of Israel -- to which we are committed -- and we must promote the right of self-determination for the Palestinians -- to which we are also committed by the United Nations Charter. That those two objectives are not inconsistent but, on the contrary, mutually indispensable is the heart of the matter. The function of negotiations is to develop the means by which those principles can be applied.

Though the Israelis refuse to negotiate with the PLO because it has not yet formally renounced the objective of destroying Israel, that does not preclude our exploring with PLO leaders the outlines of a deal in which Palestinians would be offered self-determination in return for such renunciation. Once that initial obstruction were cleared away, Israel would have no basis for refusing to join negotiations to work out the appropriate modalities and safeguards.

Obviously, such a proposal of self-determination must include effective safeguards, but, if we continue to prejudge the outcome of self-determination by ruling out the possibility of a Palestinian state, we nullify the principle and achieve nothing. Why, among all the world's peoples, should the Palestinians be regarded as uniquely unworthy of self-determination? No one offers a cogent answer for such discrimination.

Though President Carter understands the realities of the Arab-Israeli predicament, he is like a lifeguard trying to save an overwrought swimmer who pinions the rescuer's arms at every stroke. After each forward motion come recantation and withdrawal -- or at least qualification and reassurances -- that make our country look weak, vacillating and ineffective.

Yet the situation grows increasingly precarious -- not merely for Israel but for us. We can no longer afford to indulge Israeli neuroses by precluding self-determination or abide by Kissinger's self-denying ordinance regarding the PLO; we have not only moral principles but vital interests to protect. By the Camp David accords we are in danger of alienating those Arab nations (far more relevant to our interests than Egypt) that supply one-third of the free world's oil. We can rectify that situation only by liberating our diplomacy from self-imposed restrictions and getting on with serious peace talks. That will not be easy in an election year.