JERUSALEM, FEB. 25 -- As Secretary of State George P. Shultz begins his Mideast peace mission, he will need to bridge a gulf of anger and suspicion among Palestinians who feel that the United States has neglected their quest for self-determination while offering full backing for an Israeli government intent on maintaining control over Gaza and the West Bank.

In the last few days that distrust has boiled over and stymied U.S. efforts to arrange a meeting between Shultz and prominent local Palestinians. The Reagan administration is seeking the cooperation of those local leaders in discussions about future autonomy for the 1.5 million Palestinians living in the occupied territories.

At first, the locals, all of them considered political moderates, were given a green light by the Palestine Liberation Organization for a meeting with Shultz. Then the PLO changed its mind -- and so, abruptly, did the moderates. Instead of meeting Shultz here, they said he would have to meet in an Arab capital with a delegation handpicked by the PLO that would include Palestinians from outside Israel and the territories, a proposal rejected so far by the Americans.

The first interpretation of the boycott by analysts here was that the PLO once again had prevented moderate voices in the West Bank and Gaza Strip from being heard. But Palestinian sources say the situation is more complex than that. They contend that mainstream PLO leaders find themselves caught between the prominent moderates and the Arab street activists who have led the uprising in which at least 61 Palestinians have been killed since early December and who see seeds of betrayal in the Shultz initiative.

The views of the activists are reflected in broadcasts from Quds radio, a station that the Israeli Army says is transmitting from Damascus, and in leaflets issued by an underground steering committee that calls itself the Unified National Leadership for the Uprising.

"The Palestinian people in revolt reject the Israeli-American conspiracy that some Arab elements are trying to help further," said the committee in its latest leaflet. "They are trying to force it on our people in a hopeless attempt to abort the uprising."

The activists fear Shultz is here not to press the Israelis to make genuine concessions but rather to help Israel refurbish its damaged world image. Having turned up the heat in the occupied territories to the point where Shultz felt it necessary to come, they appear in no mood to compromise with someone they mistrust so intensely.

"Deep down inside, people believe the Americans and the Israelis really just want to buy time until they can end the uprising," said Daoud Kuttab, a prominent Palestinian journalist. "If Shultz was really interested in genuine peace, why did he wait so long to get started?"

Hanna Siniora, an East Jerusalem newspaper editor who met with Shultz in Washington earlier this month and who had planned to meet with him again here before the PLO cast its veto, also is pessimistic. In his view, no breakthrough is possible until the United States is willing to recognize the Palestinian right of "self-determination" -- diplomatic code language for supporting an independent Palestinian state on the West Bank and in Gaza.

"Basically we are back again to square one because of the reluctance of the United States to recognize the fundamental rights of the Palestinian people," he said.

American officials say such recognition is, in the words of one diplomatic source, "simply not attainable right now." They reiterate Washington's position that it will not sit down with the PLO until the organization recognizes Israel's right to exist and suspends its war against the Jewish state.

Siniora and Kuttab agree that Shultz could overcome Palestinian mistrust if he could win Soviet support for his peace initiative. So far, diplomatic sources say, Moscow has not said no, but Shultz did not seek a specific Soviet endorsement.

Despite their mistrust, Palestinians are reluctant to be the first to reject the U.S. initiative. They are hoping either Israeli Prime Minister Yitzhak Shamir or Jordan's King Hussein will play that role.