The Justice Department notified Congress yesterday that it does not plan to seek prosecution of Palestine Liberation Organization chairman Yasser Arafat for the murders of two U.S. diplomats on May 2, 1973.

Forty-four senators asked the department in February to consider such a prosecution, but Assistant Attorney General John R. Bolton told them in a letter that Arafat could not be prosecuted because the United States lacks legal jurisdiction and sufficient evidence.

While laws passed over the last decade have increased the department's authority to prosecute terrorist killings of Americans abroad, Bolton told the senators that applying those laws retroactively to the 1973 murders would violate the Constitution.

Without those laws, Bolton wrote, "There is no statutory authority upon which to predicate a prosecution such as the one you suggest."

The Senate letter, initiated by Sens. Frank R. Lautenberg (D-N.J.) and Charles E. Grassley (R-Iowa), said evidence indicated that Arafat may have ordered the killings of Cleo Noel, U.S. ambassador to the Sudan, and charge d'affaires G. Curtis Moore.

They were shot to death by eight terrorists, who were identified as members of the PLO fringe group Black September and who seized the Saudi Arabian Embassy in the Sudanese capital, Khartoum.

Bolton said that "although much has been alleged about evidence implicating Arafat . . . the evidence currently available from key departments and agencies within our government and from other sources is insufficient for prosecutive purposes."

Even if a case could be brought, he said, "critical national security information would be irreparably compromised if we disclosed during litigation the nature of our searches for evidence."

Lautenberg and Grassley issued a statement which said that "a strong argument could be made that the department had jurisdiction to go after Arafat if it had the political will."