King Hussein's action ends charade. His move underlines Palestinian demand for true independence

Mideast peace has been creeping closer between Iran and Iraq, but this only underlined the fact that the older dispute between Israel and the Arabs is farther than ever from settlement. A big difference between the two problems explains why one is approaching a settlement and the other is not.

The issue between Iraq and Iran has always been the location of the mutual border. Neither was attempting to deny the right of existence of the other. But both wanted control of the mouths of two rivers, the Tigris and Euphrates.

The Iran-Iraq war has been a boundary war. Boundary wars can be resolved at the boundary. This war started by Iraq is ending because Iran has been unable to capture the commercially valuable river mouths by force of arms, even though its population outnumbers that of Iraq by three to one.

The issue in Palestine is more than a boundary matter. It is over whether land inhabited by a million and a half mostly Muslim Arabs is to be incorporated permanently into the state of Israel.

The news this week about the Arab-Israel issue is that Jordan's King Hussein is stepping aside as a potential intermediary between Israel and the Palestinian Arabs.

This is a shock and a disappointment in Washington because United States diplomacy in the region has long assumed that the King, who has been subsidized throughout much of his reign by the US, could be maneuvered into accepting and legitimizing the kind of settlement under which the Israelis would retain effective long-term control over the occupied territories.

The King went through a long-detailed negotiation with former Israeli Prime Minister (now foreign minister) Shimon Peres. The King is said to have realized during the negotiations that Peres expected a conclusion under which Jordan would, in effect, police the Arabs in the territories while Israel would retain actual military control and freedom to plant more Israeli settlements in the Arab territories.

Mr. Peres is more flexible than Prime Minister Yitzhak Shamir, but not to the point of actually accepting a Palestinian state.

The Palestinians want their own state. Their chosen representative on the outside is the Palestine Liberation Organization, the PLO, headed by Yasser Arafat. The PLO would never settle for less than an independent Palestinian state.

Israel refuses to deal with the PLO because of the above. (Its explanation for not dealing with the PLO is that it is a terrorist organization.) It knows that it can never get the PLO to accept a deal under which Israel retains the ability to continue ``creeping annexation'' in the occupied territories.

The practical result of the King's actions is to wipe out the possibility that during the remaining months of the Reagan administration US Secretary of State George Shultz might make some progress on his already-stalled peace plan.

Certainly from now until after this fall's election in Israel no Israeli government would agree to a separate Palestinian state. The PLO, and the Palestinians themselves, will not accept anything short of independence.

These two positions are irreconcilable. Either someday there will be a Palestinian state inhabited largely by Arabs and governed by Arabs, or there will be a much enlarged Israel from which many Arabs will have been pushed out in a population ``transfer.''

This is a situation clarified by the eight-month-old defiance of Palestinian youths. The stone throwing and the killings go on. Every day brings news of another one or two Palestinian youths killed by Israeli soldiers. More Palestinians are ``deported.''

The long acquiescence of Palestinians to Israeli rule made some sort of compromise theoretically possible. But that possibility ended with the revolt of the Palestinians. They are in rebellion against the old condition. The rebellion continues. It will continue.

Israel is not ready to recognize the right of the Palestinians to a homeland of their own. King Hussein has opted out of any attempt at a compromise short of an independent Palestinian homeland. This is an impasse.

King Hussein's action identifies the impasse.

It also ends the Schultz initiative because it underlines the fact that the issue is not over a boundary; it is over whether the Palestinians can gain true independence. Israel refuses to grant it. Washington is incapable of forcing Israel to grant it. In theory the US could, by simply withholding the annual American subsidy. In practice Congress is so controlled by the pro-Israel lobby that the government's hands are tied.

Conceivably the situation might change when there is a new government in both the US and Israel. Conceivably the next president of the United States can renew the search for peace between Israel and its Arab neighbors under new and more promising circumstances.

Right now King Hussein of Jordan is opting out of a charade which was going nowhere.

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