Rarely has a single terrorist incident created such international commotion. The Achille Lauro affair has produced anger between Egypt and the United States, strains between the United States and Italy, a convulsion in Italy's ruling coalition, anti-government riots in Egypt and cancellation of a breakthrough meeting of the British foreign minister with the PLO. Even the General Assembly, under heavy American pressure, tabled a planned invitation to Yasser Arafat. The diplomatic din you hear is the sound of a myth exploding. The myth is PLO moderation, its vaunted turn from terror to diplomacy.

On this assumption has been built the Middle East policies (its centerpiece: engaging the PLO in the "peace process") of Egypt, Italy, Britain and, increasingly, the United States. Policies, alliances, even governments are now being rearranged not because of individual blunders or lies, but because of the logic of the situation: after the Achille Lauro, to talk of a new, moderate, post- terror PLO is to risk ridicule.

To avoid the risk, the British government took the precaution of asking the PLO delegation it was to meet with in London to sign a statement renouncing terror and recognizing Israel's right to exist. As if to confirm everything that had happened aboard the Achille Lauro, the PLO delegation refused. The British foreign minister then called off the meeting.

Not everyone decided (for the time being at least) to bend before the facts. Italy decided to send the facts to Yugoslavia. At the first available moment, it released Abul Abbas, the notorious Palestinian terrorist (the White House's phrase) who was aboard the hijackers' getaway plane that the United States diverted to Italy.

With Abbas, the PLO double game -- commit terror,talk peace -- is up. Here is the man sent by Yasser Arafat as an "intermediary" between civilization and the Achille Lauro hijacker-murderers. Abbas turns out, in fact, to be the man who sent them. He turns out further to be neither a freelancer, nor a PLO renegade, nor head of a PLO "offshoot," as the chronically apologetic Western press speculated for as long as it could. He is a top Arafat aide, a loyalist whom Arafat himself placed on the PLO's highest body, its 11-man executive committee.

Why did Italy let him go? Incomprehensible, said the White House. Ever mindful of alliance sensibilities, the administration was being kind. It is entirely comprehensible.

The first consideration is fear. After a 1973 PLO attack on a Pan Am airliner at Rome airport, foreign minister Guilio Andreotti (who was then prime minister) worked out a deal with the PLO: Italy agrees not to get in the way of the PLO, and the PLO finds non-Italian targets for its terror. In case Andreotti had forgotten the arrangement, Arafat reminded him last week, warning Italy of "uncontrollable reactions" if it did not release Abbas.

A more grandiose but no less cynical consideration is Italy's diplomatic amour-propre. A pro-PLO policy to win the favor of the Arab states is the cornerstone of Andreotti's Med- politik. This policy not only guarantees Italy access to oil but allows one of the weakest of the former imperial powers to puff itself up as the most influential European power in the Mediterranean. It ain't Abyssinia, but it's something. That this "power" is gained purely by appeasement -- for example, acquiescing to Arab demands for releasing a criminal whom Italy was treaty-bound to the United States to hold for at least 45 days -- is an inconvenient but apparently not insupportable detail.

Above all, releasing Abbas was for Andreotti and prime minister Craxi a kind of cognitive necessity. Their entire Middle East policy is built on the assumption that the PLO has turned moderate. Abbas -- and his association with Arafat, sure to come out at any trial -- is its refutation. Theory and fact collided aboard the Achille Lauro. Italy, not for the first time, chose theory.

The facts, after all, are intolerable. Abbas' group issued a communique in Cyprus explaining that its men had really planned to land at "Ashdod harbor in occupied Palestine" to attack "military targets." Now, Ashdod is not on the West Bank or Gaza. It is within pre-1967 Israel, the Israel that Andreotti & Co. insist the PLO is ready to accept. If Ashdod is "occupied," then all of Israel is occupied. So much for recognizing Israel's right to exist.

As for "military targets," Israelis are painfully familiar with Abbas' targets. In its most successful raid, Abbas' group kidnapped a family in Nahariya, shot the father and dashed the head of his 5-year-old daughter against a rock. The man who did this was at the top of the list of 50 "fighters" the Achille Lauro hijackers demanded released from Israeli jails.

As if to confirm the point, on the very day the U.S. Navy intercepted the hijackers' getaway plane, a booby-trapped soft drink bottle exploded in a cafe in Tel Aviv. The owner was slightly wounded. In Tunis the PLO took credit for the blast, in which, it said, "many Israeli security agents were injured." Every cafe owner, a security agent. So much for renouncing terror.

On the Achille Lauro, one man was murdered. The defense of the man who sent the killers -- when not absurdly denying the fact of the murder -- is that he intended instead the killing of other innocents. That is a kind of defense, a PLO defense.

What is Italy's?