Palestine Liberation Organization Chairman Yasser Arafat, giving an unexpected boost to Jordan's King Hussein, has authorized PLO participation in a commission with Jordan to draw up proposals for Middle East peace negotiations, Jordanian and PLO officials said here today.

The proposals will be presented by Hussein to President Reagan next month, the officials said.

The PLO's move means that Hussein may bring with him a Palestinian-backed formula when he arrives in Washington Dec. 21 for talks that are considered crucial to the future of Reagan's Middle East peace plan.

The centerpiece of the U.S. plan is establishment of a Palestinian entity associated with Jordan in the West Bank and Gaza Strip, which now are occupied by Israel. So far, however, the king has not obtained authorization from the PLO to negotiate on behalf of the Palestinians in talks on the matter. The 14-member commission is to seek a way to open negotiations with Israel, possibly with U.S. mediation, without the PLO renouncing its demand for an independent Palestinian state or its insistence that it is the only legitimate representative of the Palestinian people.

Reagan's plan, outlined Sept. 1, opposes the establishment of an independent Palestinian state, and the United States refuses to negotiate with PLO officials until the organization recognizes Israel. While it was not clear how the PLO and Jordan hoped to handle U.S. opposition to a state, they were understood to hope to get around the second problem by having the PLO authorize Palestinians who are not PLO members to negotiate on its behalf in any future talks.

The United States has hoped that Hussein alone could speak for the Palestinians in any peace talks, but the king has said he could not assume such a role unless it was approved beforehand by the PLO. The PLO has been named as the "sole legitimate representative of the Palestinian people" by the Arab League ever since the 1974 Arab summit in Rabat, Morocco.

Two separate proposals were understood to be under consideration, both of which reportedly were floated before U.S. Secretary of State George P. Shultz last week by two West Bank mayors expelled by the Israelis.

The mayors, Mohammed Milhem of Halhoul and Fahd Kawasme of Hebron, held a long round of talks with U.S. officials in Washington that culminated in a one-hour meeting with Shultz after they had attended a conference at the American University in Washington.

The preferred formula for an Arab negotiating team, according to one of the PLO commission members here, was a joint Jordanian-Palestinian delegation. Its Palestinian members, possibly men such as Milhem and Kawasme who are not identifiable directly with the PLO, would be authorized by the PLO to negotiate. The organization would remain in the background as an outside advisory group to the delegation.

If such a joint Jordanian-Palestinian delegation were not acceptable to the Israelis or the United States, the Palestinian sources said, then the other alternative would be a wider "Arab delegation." Palestinians such as Milhem and Kawasme still would be included, again with the express authorization of the PLO.

Prof. Everett Mendelson of Harvard, a specialist in Middle East affairs for the American Friends Service Committee, said today that he had heard from one of its members who attended the mayors' meetings with U.S. officials in Washington that the State Department had not immediately turned down the mayors' suggestions except to insist that no recognizable political PLO figure be considered for inclusion in the proposed joint delegations. According to Mendelson, there was no objection for the inclusion of West Bank deportees like Milhem and Kawasme.

These proposals, according to Jordanian officials close to the king, are perfectly in line with his thinking on the matter. Despite the portrayal in Washington of Hussein as eager to get on with negotiations, these Jordanians say the king believes that Washington is putting undue pressure on the Arabs and the PLO to make concessions without putting similiar pressure on Israel.

How the larger issue of a Palestinian state might be finessed was not immediately clear. Arafat and Hussein, in talks last October and again this weekend, agreed in principle on an eventual federation between Jordan and a liberated West Bank and Gaza. The PLO, however, had insisted that such a federation could come into being only after the establishment of an independent Palestinian state in those territories.

The PLO has been adamant that it not give up the basic policies of its organization with nothing guaranteed in return. Arafat won a vote of confidence from the Central Council in Damascus last week only after he convinced them that his current diplomacy, especially via Hussein, would not mean that he was renouncing the PLO's representation of the Palestinians or giving up the concept of an independent Palestinian state.

The commission appointed by Arafat and Hussein to conduct talks on the compromise proposals is to be headed on the PLO side by executive committee member Ahmed Dajani and on the Jordanian side by Prime Minister Mudar Badran.

The committee held its first meeting with Arafat attending, last night. Arafat left Amman at dawn on a plane to South Yemen, but PLO officials indicated that he would return to Jordan within two weeks to hold further talks with the commission and possibly with Hussein.

[In Rabat, Morocco, Agence France-Presse reported, Saudi Arabian King Fahd met U.S. special envoy Philip C. Habib to hear a report on Habib's recent efforts to bring about a withdrawal of foreign forces from Lebanon.]