Two weeks after a radical faction of the Palestine Liberation Organization staged an abortive seaborne raid on a beach near Tel Aviv, the Bush administration is still trying to decide whether breaking off its dialogue with the PLO would doom its efforts to restart the Middle East peace process.

"I want to see that terrorist act condemned, and those who did it condemned," President Bush told reporters at the White House yesterday. But Bush stressed that he hasn't decided yet to halt the dialogue, and he said that "quite a bit is going on behind the scenes" between the United States and such U.S. allies as Egyptian President Hosni Mubarak to force the PLO to discipline the perpetrators of the attack.

In testimony before the Senate Foreign Relations Committee yesterday, Secretary of State James A. Baker III told skeptical members the administration's response could have such profound implications for Middle East peace that the decision should be made "without the pressure of artificial deadlines."

Baker expressed outrage at the attack by the Palestine Liberation Front (PLF), whose leader, Abul Abbas, is a member of the PLO's 15-member executive council. He said the United States insists that the PLO "condemn the attack in unambiguous terms. . . and begin to take steps to discipline Abul Abbas." But, he acknowledged, "To date, the PLO's public and private responses have fallen short of the mark."

When committee members argued that the United States therefore should end or at least suspend the dialogue, Baker replied: "Friendly governments with which we have been in touch and which have urged the PLO to deal with our concerns have asked us not to rush our decision. . . this issue also has important implications for the Arab-Israeli peace process. So in reaching our decision, we want to weigh matters carefully and do so without the pressure of artificial deadlines."

Baker said that in addition to Mubarak and his foreign minister, Esmat Abdel-Meguid, he has discussed the situation with the foreign ministers of Britain, France, Sweden, the Netherlands and Turkey. All are known to feel that a break in the dialogue would end any hope of launching talks between Israel and the Palestinian inhabitants of Israeli-occupied territories and probably would trigger a new wave of anti-Western violence and terrorism in the region.

At a news conference following a North Atlantic Treaty Organization meeting in Scotland last Friday, British Foreign Secretary Douglas Hurd said there was "not much doubt" that Abul Abbas was behind the Tel Aviv attack. Nevertheless, Hurd continued, the search for new Mideast peace negotiations is so vital that the United States should continue talking to the PLO and its chairman, Yasser Arafat, even if they fail to take the actions demanded by the United States.

Such a move, however, could thwart any subsequent U.S. efforts to convince the newly seated, rightist government of Israeli Prime Minister Yitzhak Shamir that the Jewish state could depend on the United States to protect its interests in new peace talks.

Efforts to make progress toward such talks were hung up for three months after Israel's coalition government broke up in disagreement over Shamir's refusal to accept a Baker formula for talks. Shamir charged that Baker's plan was a means of giving the PLO an indirect role in peace negotiations. Now, the United States must deal with a new Israeli government that is uniformly opposed to any contact with the PLO and that contains many elements unwilling even to discuss the future of the occupied territories.

The administration had hoped that Baker's persuasiveness and pressures from the American Jewish community would bring Shamir to the bargainig table. When the PLO dialogue was authorized by Secretary of State George P. Shultz in December 1988, American Jewish organizations, while unhappy with the move, refrained from criticizing Shultz and said they trusted his assurances that continuation of the dialogue would depend on the PLO refraining from terrorism.

Now, these same groups are warning that the credibility of Bush and Baker in the American Jewish community will be severely damaged if they are perceived as looking for ways to let the PLO off the hook and continue the dialogue. That message dominated the just-concluded annual meeting here of the American Israel Public Affairs Committee (AIPAC), the principal pro-Israel lobbying group.

Echoing sentiments that appear to be widely shared among Israel's supporters, the more than 2,000 people attending the AIPAC session left no doubt that if the administration wants American Jews and their allies in Congress to urge Shamir toward negotiations, it must hold the PLO to the conditions outlined in 1988 or terminate the dialogue.