HUNTSVILLE, ALA., JUNE 20 -- President Bush announced here today that he has suspended U.S. talks with the Palestine Liberation Organization until PLO Chairman Yasser Arafat condemns last month's attempted Palestinian attack on an Israeli beach and disciplines the perpetrators.

"We have given the PLO ample time," Bush said, to take the actions the administration has been demanding for three weeks as a condition for continuing the dialogue begun 18 months ago.

"We can't digest it as long as this terroristic act is sticking in our throat," the president said. "And properly so, as {the United States is} a country that decries international terrorism."

If and when the PLO "resolves problems associated with terrorist acts," Bush said, the administration will be prepared to resume the talks with Arafat, whom Bush praised repeatedly today as contributing to the peace process in the Middle East.

The PLO criticized the Bush administration move as "an unfriendly and provocative act" and called for economic sanctions against the United States. In Israel, the government welcomed the suspension as "an important and positive decision" and said it would be sending the administration new proposals on how to advance the peace process without the PLO. {Details on Pages A30 and A31.}

Bush, traveling in the South on behalf of Republican candidates for office, acknowledged that the suspension of PLO talks and recent sharp differences with the new government in Israel do not bode well for the peace process. "It's not moving forward," he said.

On May 30, two speedboats filled with armed Palestinians were intercepted by the Israeli navy off Tel Aviv. Bush said the circumstances made it clear the intended victims were Israeli civilians.

The Palestine Liberation Front, a radical faction of the PLO headed by Abul Abbas, asserted responsibility for the attack. Abbas is a member of the PLO executive committee, and Arafat said he lacked the power to expel Abbas and did not specifically condemn the May 30 attack.

U.S. officials said Bush, Secretary of State James A. Baker III, U.S. Ambassador to Tunisia Robert Pelletreau and others had employed the full range of U.S. pressure and appeals over the last 20 days to impress on Arafat that the administration would suspend talks unless Arafat met the conditions. Pelletreau has been conducting the dialogue with PLO officials in Tunis.

Bush said nothing compelled him to make the announcement today other than that the PLO had had enough time. A number of U.S. allies as well as the Soviets and some moderate Arab leaders had asked the White House to give Arafat more time, but domestic political pressure against the dialogue has begun to grow, officials said.

A senior official said a Senate resolution calling for a suspension of talks might be approved before the July 4th congressional break, and the White House "wanted to be seen as driving this process, not being driven by it."

Bush's decision won bipartisan support from Senate leaders, including Majority Leader George J. Mitchell (D-Maine), who called it the "correct decision" under the circumstances. Foreign Relations Committee Chairman Claiborne Pell (D-R.I.) said the administration "had no choice but to suspend the talks" and planned to go ahead Thursday with committee consideration of the resolution urging suspension. A committee aide said the resolution might be modified to reflect the administration action.

Bush said the dialogue was always "based on the assumption that the PLO is willing to abide by the conditions it accepted" in 1988, recognizing Israel's right to exist and renouncing terrorism.

Baker, speaking to reporters as he flew to Berlin for talks on German unity, said the decision would set back the Middle East peace process but was made because "we cannot let our desire to move forward toward peace inhibit or dilute our firm commitment to fight terrorism."

He added he thought it "quite unlikely" that any Palestinians in the occupied territories would engage in independent talks with Israel "unless there is at least a tacit acquiescence by the PLO." That meant, he said, "We are really back to the status quo ante of December 1988," when the U.S.-PLO talks began.

The president, stressing his reluctance to end the dialogue, called Palestinian participation "vital to any successful {peace} process." He said he hoped his action would be seen as "taking a narrow shot at terrorism," not as ending Middle East peace efforts.

Bush also reflected frustration with Israel's new conservative government. He denounced again its new policy of spurring settlement in the occupied West Bank and Gaza territories, questioning the commitment of Prime Minister Yitzhak Shamir's government to the peace process.

"I have very specifically asked questions that relate to seriousness about the peace process" in a letter to Shamir this week, Bush said, "to make clear to him that it is our view that the peace process must go forward." And, he added, it "must go forward along the lines of" its original course.

Bush acknowledged he was worried his decision might play into the hands of those who opposed the dialogue from the outset. "We had to weigh the whole question," he said. He said he hopes Palestinians will note the "rather temperate view here that we're specific in calling for condemnation of this particular terrorist act, that once that is done. . . . we can resume talks."

The president said that while the U.S.-PLO dialogue had not "resulted in a more dynamic peace process," it had helped narrow differences and reduce hostilities. It also, he said, encouraged "moderation" in PLO ranks.

Even as he was cutting off the talks, Bush was free in his praise for Arafat, saying his recognition of Israel's right to exist in 1988 was "quite a step forward . . . that was predicted no Palestinian leader could do."

On other matters, Bush did not rule out eventual U.S. backing for economic aid to the Soviet Union. "I'm not saying we're not interested" in the aid proposal by France and Germany, he said, "but I am saying there are some formidable obstacles." The president said Moscow's economic system needs "a lot of reform" and it must stop supplying aid to Cuba. The proposal is likely to be debated at the Houston economic summit next month, he said.