JERUSALEM, SEPT. 1 -- The extensive support among Palestinians for Iraqi President Saddam Hussein has touched off a difficult debate among Israelis over whether rapprochement between Israelis and Palestinians is still possible.

As Arabs in both Israel and the Israeli-occupied territories have demonstrated in support of Saddam, some of their most stalwart Israeli allies have expressed dismay and made clear that their hopes for reconciliation between the two peoples have been shattered.

"The Palestinian leadership, which in the past has always made mistakes, has done it again by supporting Saddam," said leftist parliament member Yossi Sarid, one of the most outspoken Israeli defenders of Palestinian rights, in an essay published in the Israeli press.

How can the Palestinians simultaneously support Saddam and demand concessions from Israel, he asked, when Saddam's "crimes . . . make the sins of the government of Israel look white as snow?"

"When you 'Palestinians' ask once again for my support for your 'legitimate rights,' " warned leftist Yaron London in another broadside, "you will discover that your shouts of encouragement to Saddam have clogged my ears."

The left's pain has been greeted with self-satisfied approval by Israel's extreme right. Right-wingers have been arguing that the Palestinian glorification of Saddam merely proves what it has been arguing all along: that Israel has nothing to discuss with the Palestinians and no secure alternative to annexing the occupied West Bank and Gaza Strip, which were captured in the 1967 Middle East war and are now home to an estimated 1.7 million Arabs.

Spokesmen for the right-wing government of Prime Minister Yitzhak Shamir so far have taken a more temperate public stance, saying that when the crisis is over both Israelis and Palestinians will have to set aside their emotions and try to coexist again. Some government officials have even said that if Saddam is vanquished by a U.S.-led international alliance, subsequent pressures for an Israeli-Palestinian settlement may grow stronger than ever.

Still, many commentators and politicians say the crisis has challenged several fundamental assumptions about the Palestinians that have developed across the spectrum of Israeli politics during the last few years.

Among them are questions about the willingness of Palestinians to accept the existence of a Jewish state, the role of the Palestine Liberation Organization under Yasser Arafat, and the very existence of a unique Palestinian nation whose aspirations must be recognized and dealt with.

In several respects, Saddam's influence has served to reverse the political and psychological gains Palestinians made among Israelis on these issues as a result of the intifada, the now-moribund uprising that began in the territories 32 months ago. "The Palestinians by their extreme behavior have turned off the whole world," said Danny Rubinstein, an Israeli journalist who covered the rebellion. "They may now pay a heavy price."

Palestinian leaders say that support for Saddam reflects Arab frustration at the failure of U.S.- and Egyptian-sponsored efforts to set up Israeli-Palestinian talks earlier this year and the resultant disillusionment with peaceful tactics for combating Israeli military rule in the occupied territories.

Leaflets distributed this past week by one militant PLO faction, the Popular Front for the Liberation of Palestine, even called for a break in dialogue between Palestinians and the Israeli left, attacking the latter as a front designed merely to justify the occupation.

Still, the Persian Gulf crisis erupted at a time when the Palestinian leadership in the territories, if not the PLO itself, appeared to be making headway in winning over Israelis to its platform for peaceful coexistence between Israel and a Palestinian state in the West Bank and Gaza.

Following months of concerted effort, Palestinian activists led by East Jerusalem's Faisal Husseini had forged political alliances with Israeli groups ranging from the dovish Peace Now to prominent young parliament deputies of the mainstream Labor Party.

Only days after the Aug. 2 Iraqi invasion of Kuwait -- and before the outburst of Palestinian support for Saddam gathered momentum -- Husseini and other local PLO leaders carried off a groundbreaking meeting with 16 Israeli Knesset deputies, who agreed to draft a joint platform for peace with the Palestinians.

Some political observers felt at that time that a new center-left political bloc could soon form in Israel that would openly embrace the idea of Israeli negotiations with the PLO and the creation of a Palestinian state.

But the Palestinian political gains were not limited to the left. Though unwilling to budge on the issue of territory, Shamir and other leaders of the Israeli right had implicitly acknowledged the existence of a Palestinian people distinct from other Arab nations, and had grudgingly accepted the concept that Israeli-Palestinian negotiations must form the heart of any Middle East peace process.

Now, Palestinian support of Saddam, both in the streets and in the East Jerusalem parlors of the local leadership, has changed the thinking of both the left and right. For the Israeli left, the elevation of Saddam to hero status by many Palestinians has shattered the belief that the Palestinians had finally given up their aim of destroying the Jewish state and driving its population "into the sea."

"How do we know what the Palestinians really desire?" asked London, a prominent television commentator, in an article for the newspaper Yediot Aharonot. "Now I know: the vast majority want a modern-day Saladin," the Arab general who vanquished the Crusaders, "a leader who will unite the Arab world and banish the non-Arabs from the Middle East."

"Some on the Israeli left created romantic fantasies about an Israeli-Palestinian dialogue which would even transcend the boundaries of formal peace and become a peace between bosom buddies and allies," said journalist Pinhas Inbarri. "They must now overcome the shock of realizing that the very Palestinians whom they supported in the intifada prefer the thug from Baghdad over them."

For both the left and right, the pan-Arab tenor of Palestinian pro-Iraqi demonstrations has eroded the notion that Palestinian national aspirations are distinct from those of other Arabs and must be dealt with apart from the broader Arab-Israeli conflict. Why concede the Palestinians a state, leftist commentators are bitterly asking now, when they themselves are clamoring for pan-Arab unity under Saddam?

"Those who do not realize that the purpose of the Palestinian struggle is to maintain an Arab Palestine rather than Palestinian independence are unable to explain the comprehensive Palestinian support for Saddam Hussein," said journalist Yehoshua Porat of the newspaper Haaretz. "Perhaps the only good to come out of the Saddam Hussein episode," he added, "will be the public's realization . . . that 'Palestinian nationalism' is the fruit of the imagination of various Israeli and Western elements."

So far it is unclear how the ongoing debate will affect Israeli views about the future of peace talks with the Palestinians and other Arabs. Until now, even those leftist leaders most angry with the Palestinians have not retreated from their view that Israel should withdraw from the occupied territories, because they believe the occupation hurts Israel as much as the Arabs.

At the same time, there are signs that the crisis may revive strategies of both the left and right that had appeared discredited by the intifada. On the right, officials of Shamir's government now have reason to hope that they can achieve two key aims: the destruction of the PLO and creation of a more moderate Palestinian leadership based in the West Bank and Gaza, and the linking of Israeli concessions to the Palestinians to a broader Arab-Israeli peace.

"If Saddam is defeated, Arafat will also be finished," said a government official. "And finally the Americans and Egyptians may do what we have been begging them all along -- to encourage moderate Palestinians {in the territories} to come forward and negotiate with us," about formulas for self-rule rather than statehood.

For the left, the trend toward accepting the PLO's demand for statehood may be superseded by an older idea: that the Palestinians in the territories should gain political rights through association with Jordan.

"Now that the Palestinians have publicly adopted a pan-Arab position," wrote Susan Hattis Rolef, editor of the Labor Party journal Spectrum, "it will be very difficult for them to reject the notion of a Jordanian-Palestinian state, and the insistence on a Palestinian mini-state in the West Bank and Gaza Strip will be shown to be not only impractical but anomalous."

Both leftist and rightist commentators seem to agree on one position: If Saddam survives the crisis with his Palestinian support intact, an Israeli-Palestinian peace process will be almost inconceivable.

"Only in the event Saddam remains in power will efforts not be resumed to solve the Israeli-Palestinian conflict," said Efraim Sneh, a former West Bank military governor and Labor Party activist. "Under such circumstances the Palestinians would wait for an all-out Iraqi-led war against Israel as the saving grace."