Iraq, anxious to prove it still plays a role in regional politics despite its continuing war with Iran, has emerged as the latest Arab champion of the battered Palestine Liberation Organization. Later this week, Baghdad will be the venue for a meeting of the two highest executive bodies of the PLO -- the Executive Committee and Al-Fatah Central Committee.
The Iraqis also have allowed a buildup in the number of Palestinian guerrillas on their soil and have even invited PLO Chairman Yasser Arafat to make Baghdad his headquarters, according to sources here. PLO officials here said Mr. Arafat politely refused to transfer his headquarters from Tunis for fear the Iraqis would too tightly control the guerrilla group.
``Our Palestinian brothers are here and most of their meetings are here . . . they are always welcome,'' said Naim Haddad, a member of Iraq's ruling Revolutionary Command Council in an interview last week.
Iraq's interest in the PLO stems from the ruling Baath Party's desire to remain active in the Arab world, despite the drain of more than five years of warfare with Iran, according to Western analysts.
But one step Iraq has taken could lead to a confrontation with the United States. Last week, Iraq allowed news to leak that Muhammad Abbas, leader of the Palestinian faction believed responsible for the hijacking in October of an Italian cruise ship, was in Baghdad.
Mr. Abbas is wanted by both the United States and Italian governments, who allege that he masterminded the hijacking. US diplomats in Baghdad declined to comment on whether the US would seek Abbas's extradition from Iraq.
Western diplomatic sources say it is expected that the Americans will submit an extradition request to the Iraqis if Abbas is allowed to remain in Baghdad. Iraqi officials, who declined to confirm whether Abbas was in Baghdad, indicated that if he was there and the Americans sought his extradition, the request would be refused.
``If he is here, he would be welcome,'' said a senior Iraqi Foreign Ministry official, who spoke on condition he not be named. ``He carries an Iraqi diplomatic passport. . .''
A refusal by Iraq to extradite Abbas probably would put a strain on already uneasy relations between the US and the Iraqis.
Iraqi officials say they have been disapointed by the US on several occasions since diplomatic relations between the two nations were restored one year ago, after a 17-year-break. They complain that the Americans, who remain officially neutral on the Iraq-Iran war, have not done enough to stop arms sales to Iran.
Last week, Iraqi President Saddam Hussein sent a letter of protest to President Reagan on the US's failure to condemn Israel's October bombing of PLO headquarters in Tunis, and on the forcing down by US warplanes of an Egyptian airliner carrying the Palestinian hijackers.
``Relations certainly have been strained after these incidents,'' said the Foreign Ministry official. ``We wanted to draw the Americans' attention to possible Israeli action in the future.''
Several Iraqi officials say that moderate Arab governments have been disappointed by what they see as the US's failure to move the peace initiative of Jordan's King Hussein forward. The Iraqis, who have tried hard to refine their image in the West into one of a moderate government, insist that the PLO must be allowed an active role in any Middle East peace process.
Behind the scenes, Iraq has supported King Hussein and Egyptian President Hosni Mubarak in their efforts to move the peace process forward, and the Iraqis concurred with the King's message to Arafat -- that he must more tightly control his splintered organization.
The recent rapprochement between Syria and Jordan has made the Iraqis uneasy, and their public defense of Arafat may be aimed at convincing Hussein that the Arabs would never suport his abandonment of the PLO.
Syria remains both implacably opposed to Arafat's leadership of the PLO and is allied with Iran against Iraq in the Persian Gulf war.
The Iraqis can be expected to urge Arafat to appease the King, who is said by diplomats in Amman to be dangerously close to abandoning his agreement to jointly seek peace with the PLO.
Iraqi support for Arafat could erode quickly, however, should the Jordanian-Syrian rapprochement include a change in Syria's stance on the Gulf war, Western diplomats say. The Syrians have been clashing of late with their Iranian allies over differing goals in Lebanon.
Some Arab diplomats have said that Syria may be growing tired of its Iranian alliance, which has alienated Syria from the mainstream of the Arab world. But Iraqi officials said that they hold little hope of a break any time soon between Iran and Syria.
``Syria and Iran are both sectarian governments and they are similar in their aim to confront Iraq,'' said Mr. Haddad, the Revolutionary Command Council member.