Nicosia, Cyprus — After seven months, President Reagan's ''fresh start'' peace initiative for the Middle East is growing stale. The Reagan plan - calling for Palestinian ''self-rule'' on the Israeli-occupied West Bank and Gaza in association with Jordan - has been spurned by both Israel and the Palestine Liberation Organization.
United States allies in the Arab world, such as Jordan and Saudi Arabia, have so far kept their distance. And all Arab states except Egypt agreed last September to their own common position on the issue, known as the Fez summit plan. It calls for an independent Palestinian state under PLO leadership with Jerusalem as its capital.
A close look at the Reagan plan in its seven-month-old history reveals numerous shortcomings. But virtually all shortcomings can be attributed to:
* Internal US political considerations.
* The timidity of Arab moderates.
* The intransigence of Israel and the PLO.
* A letter-of-the-law approach by too many parties.
In essence, the Reagan plan is a reaffirmation of the Camp David accords - but with a more clearly outlined US vision of the future status of Israeli-occupied territory. To understand the Reagan plan fully, one must look back at Camp David.
Camp David came about after a bold, single-handed peace initiative by a confident Arab leader: Anwar Sadat of Egypt. The American role was to encourage the peace process and create a supportive environment for the participants.
Camp David included a sizable territorial adjustment (the Sinai Peninsula) and an official treaty of peace between Israel and Egypt. More than that, Camp David included a mechanism designed to bring other parties into the peace process in the future: a series of negotiations toward ''autonomy'' for the Palestinian residents of the Israeli-controlled West Bank and Gaza. Egypt and Israel were to begin these negotiations and hammer out the trickiest concepts. Then Jordan and moderate Palestinian representatives were to join the talks.
The Israeli government of Menachem Begin, however, sped up establishment of Jewish settlements on the West Bank, staking claim to territory it regards as the biblically mandated Jewish lands of Judea and Samaria. Jordan did not join. The autonomy talks broke down.
Meanwhile, tension between Israel and the Lebanon-based PLO increased and, on June 5, 1982, Israel launched its invasion of Lebanon.
Using American-made warplanes, financed heavily by US military credits and economic aid, Israel quickly gained control of one-third of Lebanon. Many Arab officials and commentators, as a result, accuse the US of tacit - some say overt - involvement in Israel's conquest. To these Arabs, the Reagan plan is not so much a peace proposal as a public relations sop, designed to mollify Arabs.
Former President Carter, during a recent tour of the Middle East, said Israel is not following the spirit of Camp David. Many Middle East diplomats have long since pronounced Camp David dead and the Reagan plan a flop.
There is a difficult chain of events required for the Reagan plan to get off the ground.
Jordan would have to come forward to negotiate with Israel. To do this, Jordan needs PLO approval, since all the Arab countries, including Jordan, recognize the PLO as the ''sole legitimate representative'' of the 4 million Palestinians in the world. The PLO, however, has not yet given this approval, since it does not want the West Bank to fall under Jordanian sovereignty any more than under Israeli sovereignty. The PLO wants an independent Palestine.
PLO chairman Yasser Arafat is expected to confer with King Hussein in Amman soon. This is seen as the crucial meeting to determine whether the PLO will change its mind or whether King Hussein might go it alone. At this writing, both were considered remote possibilities.
King Hussein is said to be unsure whether the US will be able to bring Israel to the negotiating table or pressure it into making concessions once there. Jordanian officials point to Washington's inability so far to work out an Israeli withdrawal from Lebanon: Lebanon has only been occupied the past 10 months, not the 16 years of the West Bank.
Thus, the Reagan plan, like Camp David, is stuck. But are there other ways of advancing Mideast peace? Could the US, for instance, pressure Israel into a freeze on Jewish settlements on the West Bank? Bring the PLO into the peace process? Support creation of an independent Palestinian state?
To enforce a US demand for an immediate settlement freeze - which Israeli officials vehemently reject - the Reagan administration would have to be prepared to withhold military and economic aid from Israel, perhaps by deducting the estimated cost of each new settlement from US grants. But it seems politically improbable, even if the Reagan administration wanted to do this, to get such a tough line through Congress, where Israeli interests are strong.
With the US presidential election campaign beginning, it will be increasingly difficult to pressure Israel without incurring the wrath of pro-Israeli voters. Since the 1956 Suez crisis, when the Eisenhower administration suspended aid to Israel, no US administration has used aid as a weapon against the country.
Bringing the PLO into the peace process would not be tolerated by Israel, which sees the PLO as a terrorist group committed to Israel's destruction. Neither would Congress tolerate this. Virtually all but the most daring policymakers in Washington admit that an independant Palestine under PLO leadership could become a staging post for attacks on Israel proper and might well fall into the Soviet orbit. If Israel were harassed from this new country, the Israeli Army almost certainly would be sent in to occupy it once again.
The US, meanwhile, remains committed to a Ford administration pledge not to negotiate with the PLO so long as the PLO refuses to accept Israel's right to exist. And President Reagan repeated that the US ''will not support the establishment of an independent Palestinian state in the West Bank and Gaza,'' adding that neither would the US ''support annexation or permanent control by Israel.''
Camp David, a US diplomat in Egypt once pointed out, may be criticized for failing to bring about a complete Arab-Israeli peace, but it still is the only plan in recent Middle East history that has regained Israeli-occupied territory for the Arabs and provided security for Israel. The Reagan plan, as an extension and reaffirmation of Camp David, proposes the same sort of exchange: West Bank territory and at least partial political control for peace with Jordan and other Arab moderates. Like Camp David, the Reagan plan requires an Arab leader brave enough to act. But the Sadat assassination shows that such an act could have grave ramifications.