A crucial Arab summit conference broke up in disarray here tonight, only 5 1/2 hours after it opened, in sharp disagreement over Saudi Arabian peace proposals that imply Arab recognition of Israel.

The summit's collapse represented a grave and perhaps fatal blow to the eight-point plan advanced last summer by Crown Prince Fahd as an alternative to the Camp David negotiations. It seemed likely to result in a swift rise in Middle East tensions as competing Arab forces seek to force their points of view on their brethren.

King Hassan II of Morocco, in announcing the summit was over, said Arab kings and presidents will reconvene in one or two months, with the Fahd plan still on their agenda. But the Arabs' highly visible disagreement underlined the difficulty in organizing any new approaches to Arab-Israeli peace talks to take the place of Camp David.

"You have a right to ask why this action was taken," Hassan said on Moroccan television. "The answer is that the problems before us are very weighty and very dangerous, and that they have their repercussions. These problems represent a chain in which all the links are important."

Despite Hassan's attempt to depict the breakdown as a cautious adjournment -- citing an Arab adage, "wisdom comes before courage" -- participants were openly embarrassed. Farouk Kaddoumi, head of the Palestine Liberation Organization's political bureau, looked away when approached by correspondents, saying, "This is not the time."

"There were differences," said Prime Minister Moati Bouabid of Morocco. "The important thing is that they decided to think it over some more."

The Kuwaiti ruler, Emir Jaber Ahmed Sabah, ordered his retinue to prepare his plane for immediate departure, underlining the bad feeling created by the breakdown. Fahd, who headed the Saudi delegation, went into seclusion at the residence set aside for him here, his peace initiative in serious trouble after its first major test.

The discord had been dramatically illustrated prior to Hassan's announcement by the absence of Syrian President Hafez Assad, who unexpectedly announced at the last minute that he would not attend.

The Saudi plan, bitterly opposed by Israel, has been regarded by moderate Arab leaders and European nations as a possible basis for discussions if the Camp David autonomy negotiations fall through next spring following Israel's final evacuation of the Sinai. It calls for creation of a Palestinian state in Gaza and the West Bank, including East Jerusalem, along with guarantees for "the right of the states of the region to live in peace."

It was this proposed indirect recognition of Israel that led to a boycott by Syria, Libya and Iraq, shattering in advance the image of Arab unity in which Fahd had hoped to wrap his plan to give it more weight in world capitals, particularly Washington. In addition, Palestinian leader Yasser Arafat was reported to have been mandated by the highest organ of the PLO to withhold support for the plan, leaving Fahd without backing from those most concerned.

Libyan and Iraqi opposition was well known and their leaders' absence from this 12th Arab summit had been expected. But the PLO stand, which Arafat accepted after what was reported as a stormy confrontation last weekend in Beirut, marked an unexpected setback after the PLO leader's public endorsement of Fahd's effort.

Saudi Arabia and its moderate Arab allies also had until the last minute hoped to win Assad's support. The Syrian president's powerful brother, Rifaat, and Syrian Foreign Minister Abdul Halim Khaddam both visited Saudi Arabia in the last 10 days and Saudi Foreign Minister Prince Saud visited Damascus.

A member of the Saudi royal family told Arab journalists in Riyadh that the discussions included Syrian demands for up to $4 billion to fortify the Syrian military against Israel before any acceptance of a plan implying recognition of the Jewish state. The talks apparently neared success. Moroccan officials had a black limousine and motorcycle outriders at the Fez airport to meet Assad this morning, but in vain.

Without backing from Syria, the major state confronting Israel since Egypt's withdrawal from the Arab front, Fahd's plan was robbed of a decisive selling point. Moreover, the lack of firm PLO support left Saudi Arabia and its allies open to charges of selling out the Palestinians.

The major Palestinian argument against Fahd's eight proposals, according to reports from Beirut, was that they would commit the PLO to an implied recognition of Israel without certainty of concessions from Israel. The PLO leadership traditionally has regarded recognition of the Jewish state as "the final card" in its hand for any negotiations.

This was the Arabs' main criticism of Egypt's late president Anwar Sadat when he went to Jerusalem in November 1977. It reportedly underlay Syrian opposition to the Fahd plan as well, although Assad and the Saudis also are involved in complicated negotiations over the Syrian role in Lebanon.

Hassan opened the summit conference in his green-tiled palace in this hillside city with a veiled criticism of Assad, Libya's Col. Muammar Qaddafi and President Saddam Hussein of Iraq for their absence.

"Those who are free are responsible," he said. "And those who are not responsible are not free."

This was interpreted as a reference to the main Saudi argument in private contacts here as Fahd and Saud seek to gain support for their initiative. The argument was laid out in an editorial in the state-controlled Saudi newspaper Okaz made available here:

"The time is ripe to take definite stands on clear principles and bases that leave no room for argument. Other Arab suggestions discuss Arab rights in one way or another but they do not say how to achieve such hopes. At the same time, the Arab world is witnessing positive moves aimed at placing the nations and peoples of the world before their responsibilities to safeguard security and peace in the area."

Hassan's royal government organized a display of cheering by Moroccan peasants brought into Fez in trucks and tractor-drawn trailers as the Arab leaders drove in their limousines to the conference center.

Inside, the usually talkative Arafat, although his Palestinian struggle was at the center of concerns here, said nothing at the televised opening session.

Despite unity calls, the disunity was visible and Hassan alluded to the impression of quarreling in his remarks, calling it a difference of "balance" in the Arab world.

Behind his reference was not only the dispute over Fahd's peace proposals but also discord among Morocco, Algeria and Mauritania over the Western Sahara war. Because of that conflict, Algeria and Mauritania also were represented below the presidential level. Tunisia, Sudan and Oman also sent lower-ranking officials, each for separate reasons, bringing to eight the number of the Arab League's 20 members states that were not represented by their top leadership.

South Yemen, which along with Syria, Libya, Algeria and the PLO belongs to the rejectionist Arab Steadfastness and Confrontation Front, inexplicably was represented by its president, Ali Nasser Mohammed.