THE LATEST PIECE of paper on Palestine from the General Assembly won the lopsided majority that is the hallmark of the United Nations' incompetence in the Middle East. Some 112 nations ordered Israel to withdraw "unconditionally" from territories occupied in 1967, starting by Nov. 15, so that a Palestinian state can be set up. In return, Israel was offered not negotiations, not recognition, not agreed borders, not security, not peace, not even the right of existence: nothing.

The resolution further demanded Israeli withdrawal from "all the occupied Palestinian and other Arab territories including Jerusalem" -- code for the dissolution of Israel. The European allies, spinlessly begging for oil-Arab favor, could not bring themselves to object even to this provision; they abstained. Only Australia, Canada, the Dominican Republic, Guatemala and Norway joined the United States and Israel in opposition.

In heated and foolish response, the Israeli parliament promptly approved a bill reiterating that all of Jerusalem is the capital of Israel. Prime Minister Begin talks of further underlining the point by moving his office to East Jerusalem. Like the U.N. resolution, the new Israeli bill is inflammatory and unhelpful. Mostly the sequence illustrates the way extremists stoke each other's fires.

In fact, the Jerusalem issue cries to be deferred. At Camp David, there being no agreement on it, the parties wisely agreed just to state their positions in side letters. Under Arab pressure, Egypt has since tried to bring Jerusalem into the autonomy talks. This is how the Israelis were half driven, half emboldened to make the reaffirmations the Arabs are now reviling. Jerusalem is too hard. It should not be touched until progress on easier issues has altered ther framework in which it is being addressed.

The resolution and the bill, however, do more than make feelings boil. They divert everyone's attention from the main chance, the Camp David negotiating process. The General Assembly may choose to ignore this. Secretary General Kurt Waldheim may not understand it. But no one should sell short a diplomatic instrument that has at least three immense achievements to its credit: the first peace between Israel and an Arab neighbor, the drastic reduction of the possibility of another general Arab-Israeli war and the propelling of the question of Israeli-Palestinian relations to the center of public discussion throughout the region, most of all in Israel. As imperfect as Camp David is there is no conceivable alternative to it. The process of imposition by pressure suggested by the General Assembly is not a conceivable alternative.

At the moment, to be sure, the Camp David tempo is frustratingly slow.A little patience is required. The Carter administration is in a poor position to offer a firm, coherent design. The Israelis and Egyptians are essentially waiting for American and Israeli elections to pass. This is the substantive lull in which the propaganda storms are raging. Perhaps a short-range standard should be invoked: if the parties are not going to make things better, they should at least make them no worse.