Hassan Abdul Rahman, Washington spokesman for the Palestinian Liberation Organization, was at his desk as usual, conducting business as if the State Department had never ordered his office closed.

"We are certainly not packing up yet and we don't believe we will," said Rahman, a 43-year-old U.S. citizen, sitting beneath a photo of himself with Yasser Arafat, the PLO leader.

The eight-person staff was at work and the security cameras on the front desk were operating normally, with Rahman's burly bodyguard keeping an eye on comings and goings.

The State Department informed Rahman on Sept. 16 that he had 30 days to cease operations at the office on 18th Street NW, which Rahman has directed since it opened in 1978 during the Carter administration.

The State Department's move, which Rahman says will be challenged in court, brought quick protests by Arab groups claiming the administration had given in to pressure from the Jewish community and from civil libertarians, charging the administration had violated First Amendment rights of free speech. The administration was also accused of moving to preempt Congress, which is considering legislation to shut down the office.

The State Department said its decision, which involved upgrading the office to a foreign mission so as to be able to close it under the Foreign Missions Act, demonstrated "U.S. concern over terrorism committed and supported by organizations and individuals affiliated with the PLO."

It also represented a complete reversal of State and Justice Department policy on the PLO presence in Washington, and came after a fierce internal battle within the State Department.

On Nov. 12, 1986, in a letter to Rep. Jack Kemp (R-N.Y.), a leader in the congressional move to abolish the office, Secretary of State George P. Shultz, said he shared Kemp's "deep concern" about PLO terrorism. But he added: "The continued existence of the PLO Information Office in Washington neither reflects nor requires the approval of the United States government."

Shultz said the Justice Department had advised that as long as the office complied with relevant U.S. laws as an agent of a foreign organization "it is entitled to operate under the protection provided by the First Amendment of the Constitution."

In May this year, the policy stance was reaffirmed in a letter to the National Association of Arab Americans written by James A. McVerry, a political officer in the State Department's office of Jordan, Lebanon and Syrian affairs.

But this month, the State Department stance changed: the office not only should -- but could, legally -- be closed. Charles E. Redman, the State Department spokesman, said that the Justice Department now stated that First Amendment considerations no longer precluded the closure.

The man who personally delivered the notice of closure to the PLO office was the same James A. McVerry who had written in May to say that the office would not be closed..

The PLO -- which has 95 offices, diplomatic missions or embassies throughout the world, and is recognized by 112 countries -- opened its first office in the United States in New York in 1974, after a U.N. resolution accepted the PLO as representatives of the Palestinian people. The United States has never recognized the PLO but the New York office was authorized as an observer mission at the United Nations.

In 1978, Rahman, who had manned the New York office, set up a second office in Washington, registering, as required, as a foreign agent with the Department of Justice. Although the office had no diplomatic status and sought none, it has, for seven years, been allowed to function as an information and research bureau for the PLO.

The presence of the office has always been criticized, but over the last 12 months that criticism has apparently turned into a political force.

Observers from Arab groups believe that the pro-Israel lobby, led by the American Israel Public Affairs Committee, began a campaign to force the closing of the office following signs of growing support for an international peace conference involving the PLO. Some believe that the closure of the office might preclude any rapprochement between the PLO and the United States.

American Jewish leaders reject this interpretation. They agree that the lobbying for the closure was stepped up but they argue that it was the result of increasing PLO terrorism.

Late last year a number of congressional leaders stepped up their criticism, citing such terrorist acts as the October 1985 hijacking of the Achille Lauro cruise ship and the murder of American passenger Leon Klinghoffer. They point out that Mohammed Abdul Abbas, a leader in the PLO which claimed responsibility for the hijacking, was reelected in April to the PLO's executive committee.

Legislation to abolish both the New York and Washington PLO offices was introduced early this year in the House and the Senate. Its sponsors included two Republican presidential contenders, Kemp and Senate Minority Leader Robert J. Dole (R-Kan.).

The legislation attracted 49 cosponsors in the Senate and supporters said they have enough commitments to ensure passage.

"The legislation was gaining in support and clearly the administration were afraid of losing the initiative on an important foreign policy matter," said James Zogby, director of the Arab American Institute.

At the time, the Justice Department was examining ways of abolishing the office without violating the First Amendment. In a decision in July, apparently endorsed by Attorney General Edwin Meese III, Justice advised the State Department that by upgrading the office to full foreign mission status it could, in the same breath, be abolished under the terms of the Foreign Missions Act, which regulates such activities.

According to sources close to the State Department discussions, it was at this point that a fierce rear-guard action to prevent the closure was launched by officials in the Near East office. Led by Assistant Secretary Richard W. Murphy, they clashed with the legal adviser's office, headed by Abraham D. Sofaer, and the Bureau of International Organization Affairs, then headed by Alan L. Keyes, who both advocated the closing.

The Near East office faction contended that closing the office would be detrimental to the peace process. But by this time, according to the sources, the political momentum for closure was too strong and the only question that remained was when.

The controversy over the closing, however, looks unlikely to die down. Despite the State Department's effort to forge a compromise, several members of Congress want the New York office closed as well.