As the water for tea was coming to a boil, Mahmoud Shehadeh sat rolling a cigarette and surveying the desolation of this nearly abandoned Palestinian refugee slum overlooking Tyre.

"I am not leaving," he said. "I am staying here because this is the closest place I can live to Palestine."

Shehadeh, white-haired with his more than 70 years, spoke of Palestine through the haze of 31 unsettled years, the time elapsed since he fled what Israel calls the war of independence and Palestinians the occupation of their homeland.

The shelling of southern Lebanon during the last five months, which has driven north all but a few hundred of Burj al-Shemali's normal population of 35,000, is for people like him one more disaster, yet another losing battle in the war between Palestinian guerrillas and Israel.

For the guerrilla leadership, however, it coincides with and contributes to major advances in the other war, perhaps more decisive in the long run, to win the attention of world opinion and gain some of its sympathy. For away from the fighting, in Beirut's Palestine Liberation Organization offices, an awareness seems to be building that despite the perceived inadequacies of Egyptian-Israeli peacemaking and the military setbacks dealt out here by Israeli artillery, the Palestinians' voice finally is being heard.

"We have got to the point where the Palestinian cause is the subject of debate," said an official of the Democratic Front for the Liberation of Palestine, a Marxist group under the PLO umbrella.

The consequences of this growing sentiment -- aside from evident satisfaction among PLO officials -- remain to be worked out within the various and often competing tendencies of the Palestinian leadership. They could be determined to a large degree by developments in the Egyptian-Israeli autonomy talks or related efforts by the United States to draw Palestinians into the negotiations despite resolute Israeli opposition.

But already the increased attention paid to Palestinian demands in the United States and Europe seems to have strengthened the hand of those within the PLO hierarchy who contend that diplomacy and flexibility advance the Palestinian cause more than terror missions and all-or-nothing irredentism.

PLO officials clearly expect the United States to renew its effort to start a dialogue with Yasser Arafat's mainstream PLO leadership despite the reversal last month at the United Nations. One Palestinian intellectual in Beirut predicted that the United States would resume the initiative after the nonaligned conference in Havana, once tension over the failed first effort has subsided and the demands of Third World cares are less pressing.

In Palestinian eyes, several factors seem to push Washington in this direction. The most obvious, Palestinians say, is an impasse in the autonomy talks among the United States, Egypt and Israel because of a boycott decreed by the PLO and its Arab supporters.

Only by shifting away from the Camp David formula to include Palestinian demands for statehood can peace talks make any real progress, Palestinians say.

Official PLO policy remains that set by the Arab anti-Egypt front at Baghdad, Iraq, last March: The Camp David accords amount to treachery and surrender and must be abandoned altogether. However, there have been signs from Arafat and his Arab backers that compromise is not out of the question. This is not unusual in the Arab world, where saying one thing and doing another is a traditional tactic.

It was an attempt to capitalize on these signals that led the United States to propose a new U.N. Security Council resolution last month that would have combined recognition of Israel's right to exist with some form of recognition of Palestinian rights.

PLO endorsement of such a resolution could have been interpreted as indirect, recognition of the state of Israel, thereby releasing the United States from the pledge Henry Kissinger made in 1975 never to recognize the PLO until it first recognized Israel.

That in turn, it was hoped, would have allowed the United States to begin sustained and direct talks with the PLO, with the goal of winning at least tacit PLO approval for participation by West Bank Palestinians in the autonomy talks.

Without participation by at least some Palestinians, the talks appear to PLO officials in Beirut to be a demonstrably hollow exercise heading nowhere. The United States realizes this, they say, and thus is pushing despite Israeli opposition to get the boycott of the PLO lifted.

Palestinian leaders also appear convinced that the United States has reached its new willingness to take them into account because of concern over the possibility of reduced shipments of Arab oil. For most Palestinians, the recent Saudi decision to increase production temporarily by 1 million barrels of crude a day to about 9.5 million barrels represented a clear political warning to the United States.

"The period [of increased production] is going to be up in about a month," said a PLO official. "And that month is going to be a decisive one for U.S. policy in the Middle East.

Arafat, a relative moderate in the PLO political spectrum, still faces strong opposition within his own movement to overtures to the West. Much of it grows from a broad distrust of the United States whose policies are considered among most Palestinians to be under the decisive influence of American Jews and the Israeli government.

This impression is so widespread among Palestinians that even Shahadeh, an unschooled former British Army cook, asked a visitor to his partially destroyed house here: "Why don't you explain to me about the domination of Israel over U.S. policies in Washington?"

Feelings like Shehadeh's are reinforced by U.S. actions such as abstaining on a recent U.N. vote condemning Israel's West Bank settlements, refraining from decisive pressure on Israel to halt the shelling of southern Lebanon with U.S. arms and the dismissal of Andrew Young in what is seen by Palestinians as a bow to Israeli outrage.

Aside from the mistrust, a strong segment of the leftist Palestinian leadership also feels that any compromise would be fatal to the guerrilla movement. For them, the only real hope for a Palestinian homeland is a change in leadership within the Arab world that would unite the 120 million Arabs in a battle against Israel.

Ibrahim Bakr, a Palestinian lawyer who belongs to the 30-man PLO Central Committee, insists that deviation by Arafat from this long-term struggle would be treachery that could cost him his leadership.

"I know enough of us believe it that we could prevent Yasser Arafat from any attempt to participate in negotiations on the basis of the Camp David formula," he said in a recent interview in his law office in Amman, Jordan.

The idea of the Palestinian cause as a long-term campaign to be renewed through the next generation until at last Israel is defeated has a romantic, satisfying appeal to many Palestinians. It is particularly attractive to those who live in camps such as this, to young guerrillas who train in nearby mountain redoubts or to PLO officials who need morale-building ideology to keep up the struggle while other Palestinians are earning fat salaries in Persian Gulf oil countries.

"If you ask my son where he is from, he will say Jaffa, never Lebanon or Europe, where he was born," A PLO official in Beirut boasts, "I asked what he wanted for his birthday, and he said a submachine gun. When I asked him why, he said it was to fight Israel. Let them deal with that generation. It will be even stronger than ours."

Only 3 years old when his family fled Jaffa, he speaks in nostalgic tones of the trees in the courtyard where he used to play, his memories nourished, perhaps created, by stories from his mother and father.

Among guerrillas and their leaders, such images of "the homeland" often clash with the reality many of them have never seen. A poster in Beirut calls on passers-by to remember "Jerusalem Day, a day of steadfastness and the rifle." It carries a photo of the Old City surrounded by pastoral calm -- long since replaced in real life by Jewish housing projects and broad avenues.

Against this backdrop, Arafat is moving with characteristic ambiguity to increase contacts with the West and engage the United States in a dialogue, direct if Washington will have it that way, indirect until then.

His meeting in July with Chancellor Bruno Kreisky of Austria and former West German chancellor Willy Brandt resulted in a communique suggesting that the PLO was willing to recognize the state of Israel. Arafat never endorsed the suggestion, but it was left hanging as the United States started moving toward its effort at a compromise in the United Nations.

Another sign of willingness to deal came as the U.S. effort for a new U.N. resolution on the Palestinian question came to an unsuccessful close in the Security Council. PLO representative Zehdi Labib Terzi said Arafat had instructed him not to force a vote on a resolution opposed by the United States in order to spare the departing Young the opus of casting a veto. At the same time, however, the gesture kept the debate open and the air clear for new effort later, Palestinians in Beirut say.

But despite the new eagerness for diplomacy, there is no sign that the PLO leadership has given serious thought to abandoning commando raids in Israel to foster its political aims. A PLO spokesman responded over the weekend to Egyptian Prime Minister Mustafa Khalil's suggestion to that effect by saying the raids will continue as long as Israel "occupies Palestine."

Moreover, no one in Beirut is talking of abandoning the PLO charter that calls for establishment of a secular state in what is now Israel -- in other words, dismantling the Jewish state. But at the same time, main stream Palestinian officials in serious conversation no longer talk of destroying Israel.

Conversation centers rather on the conditions under which they would accept the West Bank and Gaza as a settlement to their 31-year war. These are:

The right of Palestinian refugees to return to their homes, whether in pre-1967 Israel or on the West Bank and Gaza.

The establishment of a Palestinian state.

Recognition of the PLO as the only representative of the Palestinian people qualified to negotiate for it.

"This is our own red line," said a PLO official. "We won't go below it."