PLO Leader Yasser Arafat told Common Market representative Gaston Thorn that he is prepared to back a Palestinian homeland on whatever part of the occupied West Bank Israel could be persuaded to withdraw from, Palestinian sources said today.

Arafat, the sources said, restated the West Bank position as proof that the Palestine Liberation Organization is not locked into a hard-line insistence on the liquidation of Israel.

Sources who attended Thorn's meeting with Arafat last night at the PLO's heavily protected headquarters in West Beirut said that the PLO leader -- as he did in a carefully timed interview a week ago that prepared the ground for the Thorn visit -- insisted that the door had not been shut on future political negotiations.

Arafat reportedly told Thorn, the foreign minister of Luxembourg, that the Plo expected a positive European initiative on the Middle East that would provide concrete proposals, not rhetoric. He urged the Common Market nations to dissociate themselves from the Camp David peace formula which the PLO, like most of the Arab states, opposes and considers doomed to failure.

The Palestinian sources said Arafat also denied accusations that the PLO is committed to a hard-line policy of military liquidation of Israel, insisting that the PLO stands by previous commitments supporting a political settlement of the Middle East conflict.

Arafat's statements were made in a closed three-hour meeting with Thorn, who was on the third leg of an official fact-finding mission for the Common Market heads of state in his capacity as chairman of the group's Council of Ministers.

Thorn said he was "very satisfied" with the results of the encounter, although "one cannot minimize the contradictions" that emerged. He said, however, that the results of his mission to the Middle East would allow 'the European leaders to decide on a [Middle East] initiative as soon as possible."

Thorn's mission was mandated at the June European Economic Community summit in Venice which, to the chagrin of the United States and Israel, issued a declaration endorsing the "association" of the PLO with negotiations for an end to the Middle East conflict. Thorn was charged with visiting the Middle East in preparation for the formulation of an indpendent European peace initiative.

Shortly before the Venice declaration in June European leaders were given pause by reports that Arafat's Fatah movement, which makes up the bulk of the PLO, had adopted a tough "no concessions" policy in a stormy 11-day congress in Damascus at which Arafat's diplomatic efforts came under heavy criticism.

Sources said Arafat told Thorn last night that he was prepared to back the idea of a Palestinian state on whatever land Israel evacuates. But Arafat reiterated that the PLO still seeks a democratic, secular state where Moslems, Christians and Jews can live together, the sources said.

No communique was issued after the meeting, and Arafat refused to make any statement on the discussions.

Thorn earlier visited Tunis for talks with the Arab League and Tel Aviv for consultations with Israeli officials.

After meeting with President Elias Sarkis of Lebanon and other government officials, he left for Syria today.