MUCH INTEREST is developing over the prospect that Yasser Arafat may be about to convene the PLO's "parliament," the Palestine National Council, in Jordan. It proceeds from the possibility that, since Chairman Arafat's numerous foes in the group have been ordered by their Syrian masters to boycott any proceeding sanctioned by him or King Hussein, he may be abandoning the requirement for consensus that has paralyzed PLO diplomacy from the start. If the PLO is split, the suggestion runs, the part loyal to his ostensibly moderate leadership may eventually find its way to the peace table with Israel.

Except that there is scant basis for hoping that Yasser Arafat's PLO, split or whole, can take the Palestinians anyplace they want to go. Having toppled Lebanon into chaos, he lost the PLO's last military option when the Israelis invaded and routed his forces in 1982. He had lost the PLO's best political option when he could not, or would not, take advantage of Camp David's quite plausible opening to the Palestinians. Yet one more chance arose when the Reagan administration authorized a private citizen to meet with him 50 times; he completely wasted this rich diplomatic opportunity. As much as everyone would like to see Palestinian moderation encouraged, it takes a willing suspension of disbelief to imagine Mr. Arafat is the man for the job.

So what's the alternative? Perhaps there is no alternative for the Palestinians -- a possibility that, many have hoped, would concentrate their political attention. Everyone knows what is required: a simple statement, by a credible body of Palestinians, that they demand a state and that, to get it, they are prepared to accept Israel and sit down and negotiate peace. Only such a turn could begin to meet Israelis' valid concern for their security, to melt their discredited concerns for territorial expansion, and to bring American diplomacy into effective play. Without such a turn, there is a sharp limit to what others can do for the Palestinians.

Meanwhile, the Reagan administration has a modest idea, not a solution but a limited substitute for one, something to work on at least until a moment for broader diplomacy reappears. The idea is, in Secretary of State George Shultz's phrase, a concern for the "quality of life" in the West Bank -- not just improvements in the standard of living but in the relationship between ruler and ruled: a lighter police hand, open universities, local development, a restoration of Arab mayors. Many West Bankers see it as a half loaf, a quarter loaf. Some Israeli officials see it as a risk. The argument for it is that nothing better is going now.