A struggle for Palestinian leadership in the occupied West Bank has broken out, causing concern not only to the Israeli occupation authorities but also to the Palestine Liberation Organization and the Jordanian government.

The outcome of the rivalry has broad implications for the future of the West Bank's political development and, in the long run, for the fate of a negotiated settlement of the Arab-Israeli conflict.

The battle for control of West Bank politics, in reality a surrogate struggle between PLO leader Yasser Arafat and his radical rivals, could also set the tone for leadership of the vast Palestinian exile movement, a key element in any eventual Middle East peace.

A principal aim of the radicals here is to disrupt the dialogue between Arafat's Fatah, the PLO's largest faction, and Jordan's King Hussein, a move that, should it succeed, would have enormous implications for the politics of the Palestinian movement.

The contest on the West Bank rarely bubbles into the open, mainly because the protagonists are committed to maintaining the appearance of unity against the common enemy, Israel.

In characteristic Middle East fashion, the conflict at the moment is being played out obliquely in such apparently innocuous forums as a higher education council and in trade unions.

But it is becoming more and more intense and key figures on both sides say it could explode into open political warfare anytime.

On one side are radical and leftist West Bank mayors and Arab "notables" who publicly identify with Fatah but, for expediency as much as ideology, are more attuned to such extremist groups as George Habash's Popular Front for the Liberation of Palestine, the Popular Democartic Front for the Liberation of Palestine and the Iraqi-linked Arab Liberation Front, the most hard-line of all.

On the other side are the less radical and moderate mayors and public figures who either are in step with Arafat or retain close ties to the Jordanian government or both.

The radical leaders are aligned for tactical reasons at least, with the communists, while the "moderates," such as infuentical Bethlehem Mayor Elias Freij, tend to be ideologically conservative and linked to the established families that traditionally have controlled wealth and influence in the West Bank.

The main vehicle for the radicals' bid for leadership supremacy in the West Bank has been the National Guidance Committee, formed after the signing of the Camp David accords to promote West Bank nationalism and coordinate opposition to the proposed plan for limited Palestinian autonomy in the occupied territories.

Although ournumbered on the committee by the moderates, the radicals, led by two popular mayors -- Bassam Shaka of Nablus and Karim Kahlif of Ramallah -- have controlled most of the group's major decisions, often following policy that contradicts PLO directives.

"Just as Freij takes his directions from Arafat, so do Shaka and Khalif take their lead from Habash. There is plenty of evidence of that," said a highly placed source in the office of the Israeli military governor.

In April 1979, the Guidance Committee sent a secret memorandum to Beirut objecting to the rappraochement that the PLO had initiated with Jordan, which in 1970 expelled the Palestinian guerrillas in the bloody "Black September" operations. The memo's wording closely followed the policy line of the Popular Democratic Front presented at last year's Palestine National Council meeting, which bitterly attacked Arafat.

When moderate Palestinian leaders and the Israeli peace movement organized a "new outlook" conference in Washington last October, Arafat gave the green light for West Bank politicians to attend. Habash and Palestinian communists condemned the meeting.

For weeks, West Bank politicians were torn between attending and not attending, until Shaka and Khalif said they were opposed to the symposium.

As a result, no West Bank officials went.

Similarily, when the controversy of Shaka's arrest by Isreal and his threatened deportation for alleged subversive remarks gripped the West Bank last November, the PLO in Beirut ordered the mayors here to remain in office rather than resign in protest. The National Guidance Committee, however, decided the mayors should resign en masse and many did.

Publicly, the mayors on both sides of the power struggle refuse to acknowledge any ideological divisions, insisting that all the West Bank and Gaza Strip leaders are united in their determination to obtain Palestinian independence under the sponsorship of the PLO.

But privately, some of the moderates express deep resentment at what they view as heavy-handed tactics on the part of the Guidance Committee radicals.

Some West Bank sources say the radicals have resorted to a form of "ideological terror," spreading rumors that moderate opponents are "traitors." The threat is always implicit, the sources said, that such deviation could result in retaliation, even if not officially decreed.

But it is not in the Guidance Committee that the struggle is being waged most intensely, West Bank sources say. It is in such low-profile groups as the Council on Higher Education, formed two years ago as an advisory group to oversee operations of West Bank universities and the distribution of funds from Amman.

The radicals quickly seized control of the council, and, according to the moderates, began using it as a platform for expanding their influence in the West Bank.

The Joint PLO-Jordan Committee, in Amman to implement the new rapprochement, recently applied pressure by saying it would withhold $12 million until the council balanced its representation. After a meeting with Arafat, the moderates got more representation on the council, but the radicals are still heavily represented.

Similar power struggles between the moderates and allies of the radicals have been played out in elections of the building trades and engineers union and in the Nablus municipal union elections.

Critics of the radicals say that in the end, the moderates will win the leadership struggle because Palestinian Arabs are, by nature, conservative and are so inherently capitalistic and bourgeois that they will never embrace a leftist leadership allied with communists.

Moreover, Jordan recently has shown signs of extending its influence in the West Bank, where since the Israeli occupation in 1967, Amman has continued to administer such activities as education.

Recently, the Jordanian government has reasserted its control over other functions such as passport offices and health care, appearing to want to keep its hand in the area in anticipation of a negotiated political settlement.

If the Jordanian presence in the West Bank increases, and the dialogue between King Hussein and Fatah continues, the radicals will find it increasingly difficult to fulfill their goal of leadership supremacy, observers predict.