JERUSALEM, AUG. 16 -- With its own international standing again at risk, the Palestinian leadership is trying to distance itself from identification with Iraq in the Persian Gulf crisis but has been largely unable to resist the swelling grass-roots support of Palestinians for Iraqi leader Saddam Hussein.

In the latest in a series of tortured and sometimes contradictory statements, Palestinians in the Israeli-occupied West Bank and Gaza Strip called Wednesday for the withdrawal of Iraqi forces from Kuwait and "the restoration of Kuwaiti self-determination." The declaration was not signed, but it represented the view of all four local factions of the Palestine Liberation Organization, activists said.

Palestinian leaders said they issued the statement in an effort to counter what they said were distortions by Israel and the foreign media in portraying the PLO as one of Iraq's strongest allies in the crisis. "In America, you want to divide it into good guys and bad guys," said Saeb Erakat, a prominent Palestinian intellectual here. "But we Palestinians are somewhere in between."

Still, the PLO and its supporters here continue to voice strong opposition to U.S. military intervention in the gulf crisis as well as the participation of Egypt, Syria and other Arab states in a multinational defense force. In the occupied territories, militant cadres of the intifada, the 2 1/2-year-old Palestinian uprising against Israeli rule, have begun daily demonstrations in which Saddam is hailed as a new hero of the Arab world.

The result is that the Palestinian movement has fallen hostage to a conflict it is powerless to control, but that has the potential to destroy its diplomatic and financial foundations. "I think the PLO is between a rock and a hard place," said Daoud Kuttab, a prominent Palestinian journalist. "You have people on both sides, you have mixed signals, and whoever you support, somebody's going to be in bad shape."

The price of the PLO's pro-Iraqi tilt, manifested in its consistent opposition to Arab League resolutions against Iraq, already has begun to climb. Egyptian President Hosni Mubarak curtly dismissed PLO leader Yasser Arafat at the Arab summit meeting in Cairo last week, and the state-guided Egyptian media have called Arafat's behavior "most embarrassing, scandalous and ugly."

Diplomatic sources say Saudi Arabia and other Arab gulf states have broken off contacts with Arafat and may discontinue the huge flow of funds they have provided to keep his organization operating. Today, Arafat proposed that the PLO and the Arab North African states mediate the gulf crisis. A spokesman for the PLO leader said in Tunis that Arafat had discussed the idea with Libyan leader Moammar Gadhafi and Tunisian President Zine Abidine Ben Ali and would present it soon to Algerian President Chadli Bendjedid and Morocco's King Hassan II.

In the West, European countries that have been supportive of the PLO's demand for self-determination for Palestinians in the occupied territories have sharply disapproved of the organization's new stance. Following a meeting Wednesday with Israeli Foreign Minister David Levy, Italian Foreign Minister Gianni de Michelis said the PLO "made a mistake" by supporting Iraq and warned that if Arafat does not change his position, "we will have to revise our attitude toward the PLO."

In Israel, peace groups and leftist parliament members who joined recently with Palestinian leaders in petitions and demonstrations calling for stepped-up peace efforts say they are shocked by the latest developments. The leftist politicians say the PLO's stand calls into question its landmark 1988 commitment to accept Israel's right to exist and casts doubt on the viability of Israeli-Palestinian negotiations.

If the crisis ends with a clear defeat for Saddam, Palestinians here concede, the PLO could also suffer a major blow. "The fear is that if the Iraqis lose in one way or another, the ones to suffer will not be the Palestinians but the PLO," said Kuttab. "The Egyptians and Saudis will look around for an alternative leadership to Arafat."

Still, even moderate Palestinian leaders say there is no realistic alternative to the movement's present position, which resembles that of Jordan's King Hussein. Saddam, these leaders say, has won Palestinian sympathies because he offers the prospect of remaking the Arab world into a power that can rival the West and force its will on Israel.

Moreover, the Palestinians say, their movement has been all but driven into the arms of Iraq by the failure of the intifada and of the U.S.-brokered peace process it spawned to yield any tangible results. "What choice did we have," Erakat asked. "For two years we looked to Egypt and the United States as a hope; we recognized Israel and renounced terrorism, only to have {Israeli Prime Minister Yitzhak} Shamir reject any negotiations with us and tell us this part of the world is still ruled by the sword."

"How could chairman Arafat go to the Palestinians out there and tell them we were sending our forces to fight alongside the United States in Saudi Arabia after all that has happened with the Americans in the last two years?" Erakat added. "What you are seeing is the action of people who have no other hope, no other alternative for ending the suffering they are enduring."

The moderate Palestinian leadership in the territories, never strong, has found itself struggling in recent days to contain popular support for Saddam that goes well beyond its own qualified statements. In one measure of public opinion, a poll by a respected Palestinian publication this week showed that 84 percent of West Bank Palestinians consider Saddam a hero and that 58 percent support the invasion of Kuwait.

As the crisis has escalated, pro-Saddam demonstrations have grown larger, and a strike called Wednesday by the Islamic movement, Hamas, in support of Iraq was observed throughout the territories. Although the action marks a modest revival of the moribund intifada -- now in its 33rd month -- it has brought little comfort to Palestinian leaders, who complain that Saddam may suffocate the rebellion by depriving it of its character as a uniquely Palestinian struggle independent of the Arab-Israeli conflict.

The right-wing Israeli government appears to view the Palestinian position as a potential windfall, hoping it can finally break the PLO by linking it to Saddam. Already, Israeli officials have prepared newspaper ads and other materials for distribution in the United States stressing the connection between Arafat and Saddam as "birds of a feather."

Still, some independent Israeli analysts are skeptical that even the total defeat of Saddam will necessarily do critical damage to the Palestinian leadership. "They will pay a price, but it won't necessarily be a big or a permanent price," said Asher Susser, director of the Dayan Center for Middle East and African Studies at Tel Aviv University.

"Ultimately, the PLO has a major asset, which is the fact that it is perceived as the only representative of the Palestinian national movement. And as such, it can only bounce back in the international arena, because after this crisis is over the Palestinian problem will still have to be resolved.

"I have seen Arafat and King Hussein declared finished so many times before that I think I know better than to do it now."