The Achille Lauro affair deals Yasser Arafat out of the Mideast peace process, for his Palestine Liberation Organization was using the talks as a cloak for terror against Israel.

But negotiations go on. With the diplomatic legitimization of Arafat out of the question, the issue is whether King Hussein of Jordan might want to advance down the road alone.

The peace process began last February when Hussein and Arafat issued a communiqu,e indicating a willingness to negotiate directly with Israel on the basis of an exchange of land for peace. Before entering into direct talks with the Israelis, however, Arafat insisted on a meeting of PLO officials with American diplomats. The United States would thus bless him as a respectable negotiating partner.

Washington -- attracted by the prospect of new peace negotiations and determined not to let down Hussein -- went to elaborate lengths to accommodate the PLO. The Israeli government of Prime Minister Shimon Peres jumped at the prospect of a dialogue with Hussein. While much more wary of Arafat, Peres kept making ambiguous noises about the possibility of a PLO presence in the talks.

Behind this relatively soft policy was a political calculation. Israel is now governed by a coalition regime linking Peres' Labor Party with the more hard-line Likud group under Foreign Minister Yitzhak Shamir. Likud opposed any dealings with the PLO. The Peres strategy was to identify himself as a conciliator, the better to split the coalition, and go to the electorate seeking a mandate for peace with the Arab world.

The intelligent PLO response would have been to sheathe swords while soundings were in process. But force is the PLO way, especially against those who preach compromise. So even as everybody searched for a way to help him, Arafat kept open the military option against Israel.

Between February and October a score of Israelis were murdered by terrorists affiliated with the PLO. Three times -- on April 20, Aug. 24 and Aug. 31 -- PLO hit squads were intercepted at sea by the Israeli navy. On Sept. 25 -- in a particularly gruesome incident -- PLO terrorists killed three Israelis on a pleasure boat in Larnaca, Cyprus. It was only then that the Israelis struck back with the raid on PLO headquarters in Tunis.

The Achille Lauro caper, far from being a reprisal for the attack on Tunis, was part of the ongoing PLO terror campaign. Arrangements for the trip were made months ago. Only discovery by a waiter led the terrorists to seize the ship. By their own confession, they were originally programmed to disembark in Israel and wreak havoc. Mohammed Abbas, the veteran terrorist, was able to talk the hijackers into surrender precisely because he came from the PLO. Thus the apprehension of the Achille Lauro hijackers amounted to catching Yasser Arafat with smoking gun in hand.

Several governments had a hard time facing that fact. Egyptian President Hosni Mubarak championed the idea of a U.S.-PLO encounter from the start. Because of Egypt's separate peace with Israel, Mubarak's regime is under pressure from Islamic fundamentalists at home and other Arab states. Hitting the PLO would intensify both pressures. So Mubarak chose to believe Arafat would discipline the Achille Lauro hijackers. When the United States intercepted the plane and forced it to land in Italy, Mubarak, claiming Egypt had been insulted, demanded an apology.

In Italy, the government of Prime Minister Bettino Craxi had developed a Mediterranean policy based on friendship with all Arabs, including the PLO, at the expense of Israel. Thus, although Rome said not a word about the Larnaca killings, it denounced the Tunis raid as if it were World War III. Craxi had promised President Reagan that Italy would try the alleged terrorists. But he changed his mind when Mubarak, who held the Achille Lauro as hostage, began squawking. So the Italians allowed the chief terrorist, Mohammed Abbas, to escape.

The United States, in fact, has no apologies to make to anybody. It forced the terrorists into custody only after all judicial means in Egypt had been exhausted. It acted against a plane commanded by military officers with only alleged terrorists as passengers. It arranged to return the plane and its crew once the wanted men were in custody. Piracy that isn't.

But there is no point in picking a fight with Egypt and Italy. Governments in both places made bad mistakes and are now trying to cover up. The United States can afford to look the other way. For the peace process remains in play. With PLO double-dealing so thoroughly exposed, King Hussein might want to continue alone. In London the other day Jordanian envoys met with British diplomats even though a PLO delegation was excluded because of its unwillingness to abjure terror.

A new push forward will take time. Hussein will need to see that partnership with Arafat makes an accord with Israel impossible. He will also need to understand that a promised arms sale by the United States is threatened by the PLO tie. He may want reassurances from countries like Egypt and Italy that will themselves need time to admit that they were truly betrayed by the PLO, not the United States.

In the end, Hussein may well decide that he can't move without the PLO. Talks will then collapse. But the chance Hussein might go forward -- the chance for a spot more peace in the Middle East -- is worth a little wait.