Palestine Liberation Organization leader Yasser Arafat has denied that his guerrilla group recently called for the destruction of Israel or abandoned its interest in negotiating for a Palestinian state to coexist with Israel.

Arafat's denial, in an interview this week, appeared to be an effort to defend the PLO's recent political gains and credibility in Europe.

The guerrilla leader said he had been too busy lately to challenge press and diplomatic reports, dating back to May, about the reported stand on Israel, but that other PLO officials have disavowed it.

Arafat accused Israel of trying to misrepresent the PLO with misleading documents widely publicized in Western newspapers and circulated at the United Nations. These purport to prove that the PLO has reverted to its old hard-line goal of never compromising with Israel.

As initially reported in May, a congress of Arafat's Fatah guerrilla organization in Damascus vowed "to liquidate the Zionist entity politically, economically, militarily, culturally and ideologically." Fatah is the largest guerrilla group in the PLO and, like the PLO, is headed by Arafat.

Arab and Western commentators concluded that the PLO, frustrated by what it sees as Israeli intransigence and disappointed with Western attitudes, had obliged Arafat to abandon his diplomacy of moderation.

Consternation spread among European supporters of the PLO. Austrian Chancellor Bruno Kreisky, the first Western European leader to meet Arafat officially, said that he could no longer continue supporting wider European contacts with the PLO. The Fatah congress undermined European plans for closer liaison with the PLO, diplomats in Paris said.

The PLO's image was also hurt by allegations of Palestinian involvement in renewed terrorism in Europe, including an attempt to kill Iranian exile leader Shahpour Bakhtiar in Paris and a grenade attack on young Jews in Antwerp.

Denying that the PLO has resumed terrorism in Europe, Arafat said that Israel had exploited erroneous press reports to distort Palestinian intentions.

Arafat said the controversial vow to liquidate Israel was never approved by Fatah. It was a draft, put forward by a small group, but it was never adopted by the Fatah congress, he said.

According to Arafat, the text advocating Israel's destruction was leaked by a radical Palestinian journalist to a Beirut newspaper, Al Liwa, which published it as a scoop giving Fatah's political platform.

At the congress, however, this text was only one of several competing drafts that were all referred to another committee, the so-called Revolutionary Command, for consideration at a future date. Aides to Arafat said that this draft will not be adopted by the Revolutionary Command, which is dominated by comparatively moderate Arafat loyalists.

However, the damage was already done, as Israel's representatives played up the contested platform.

In an Israeli letter to the United Nations, the platform advocating liquidation is quoted from Al Liwa, whereas the congress resolutions, which also appear in the Israeli report but do not call for Israel's destruction, are quoted from the PLO's official radio in Beirut.

The resolutions, Arafat said, confirm the PLO's earlier cautious political evolution toward a more flexible position about a possible settlement with Israel.

In assessing the Fatah congress, western diplomats have been cautious, partly because of the secrecy and confusion that surrounded the Damascus meeting. Changes in the composition of Fatah's leadership appear to have reinforced Arafat's personal position, but he unmistakably is under pressure to show more results from his Western-oriented diplomacy, diplomats say.

Responding to confusion over the PLO's position, the Common Market is sending Luxembourg Foreign Minister Gaston Thorn here to see Arafat next week on the second leg of a fact finding trip that also takes Thorn to Israel.

While Arafat said that he will listen to Thorn to see the potential scope of a European initiative, aides said he clearly is hoping for stepped-up European recognition of the PLO as the negotiating body for Palestinians.