President Reagan and Secretary of State George P. Shultz yesterday condemned the Palestine Liberation Organization's decision not to authorize peace talks between Jordan and Israel, and appealed to Arabs to seek a reversal of the PLO's action.

Shultz, at a news conference, went so far as to suggest that the PLO should lose its 1974 Arab League mandate to be sole spokesman for the Palestinian people if this authority is not "exercised constructively."

"We have a saying around here: use it or lose it," Shultz said.

In a related action, a House Foreign Affairs subcommittee voted to link the sale of sophisticated U.S. weapons to Jordan to that country's position on negotiations. For the sales to take place, Reagan would be required to certify that Jordan is publicly committed to the recognition of Israel and to prompt entry into direct negotiations with the Jewish state.

The amendment was sponsored by subcommittee Chairman Lee H. Hamilton (D-Ind.) as a substitute for a more restrictive measure against such sales, which have been opposed by the Israeli government. The subcommittee markup was the first step in a long and complex process of congressional action on the Middle East portions of the proposed fiscal 1984 foreign aid authorization bill.

The subcommittee also voted $365 million more in grants to Israel than had been requested by Reagan. Most of the extra funds came from a subcommittee decision that, of the $1.7 billion in arms purchase loans to Israel, $850 million should not have to be repaid, making it, in effect, a grant. Reagan had requested $550 million in such "forgiven" loans.

Hamilton said that the Israeli aid action was taken because "the Israeli economy has not been performing as satisfactorily" as it did in earlier years.

As the administration called on moderate Arabs, including moderate Palestinians, to back Reagan's badly battered peace plan for the region, a pro-western Arab leader, Sultan Qaboos of Oman, was at the White House to meet with Reagan.

In his welcoming remarks, Reagan said that despite "bumps along the way" he will persist in seeking a broad-based settlement of the Arab-Israeli conflict. "As we speak now, radical elements are seeking to prevent an agreement which would permit King Hussein of Jordan to join the peace process. The choices facing the Palestinian leaders are clear--either the status quo and the continued frustration of their people's aspirations or a bold and courageous move to break the deadlock," Reagan said.

Qaboos replied that Oman has "unswervingly suppported" U.S. efforts to bring peace in the Middle East.

However, he made no public comment on the developments since Sunday, when Hussein broke off his talks with PLO leader Yasser Arafat and announced that he would not enter the peace process independently. Hussein acted after the PLO backed away from an agreement reportedly reached earlier by himself and Arafat, and made new demands unacceptable to the king.

The U.S. initiative, conceived by Shultz and announced by Reagan in a nationally televised speech last Sept. 1, calls for the occupied territories to be given eventual independence "in association with Jordan." Since Hussein's participation is central to the success of the plan, the administration has been maneuvering since Sunday to find ways of keeping the initiative alive.

The administration has insisted that Reagan has assurances from Hussein, King Fahd of Saudi Arabia and King Hassan of Morocco that they continue to support his initiative.

However, it is unclear what any of them can do without either a change of position by Arafat or a decision by the Arab world to permit some other group or leader to speak for the Palestinian people. Despite the U.S. suggestions, there is no indication that either of these changes is likely.

Shultz, while insisting that the U.S. proposals "remain on the table," also said that he has no new facts to qualify or contradict last Sunday's announcement by the Jordanian cabinet.

"I don't have any additional information. I'm not asserting here that King Hussein is about to join the peace process," Shultz said. He conceded that the events of last week had been "a disappointment."

Shultz spoke forcefully, at times almost passionately, of the plight of the "human beings called Palestinians" and the lack of any viable alternative to a negotiated settlement between Arabs and Jews that assures them a better future.

Under questioning, Shultz made clear that he does not expect Hussein to negotiate about the future of the Palestinians without their participation in some fashion.

He said that it might have been a "trap" for the Arab League to repose in the PLO the mandate to represent the Palestinian people, suggesting that it had been a mistake to "give such power to a radical group." Shultz did not say who else he would recommend to speak for the Palestinians.

Shultz was asked about reports that he may travel soon to the area in an effort to advance the U.S. peace efforts. He replied that he does not have "any current plan" to go.