OFFICIALS of the Palestine Liberation Organization have all but accepted that they will have no direct role in the evolving Middle East peace process.But PLO officials are continuing to seek better conditions for Palestinian participation in the talks and to ensure that a land-for-peace formula is part of any negotiation, according to Palestinian officials reached by telephone in Tunis. In the five months since the defeat of Iraqi President Saddam Hussein, whom the PLO supported in the Gulf war, the organization has found itself caught in a bitter quandary. The United States has pressed hard to bring regional states to the negotiating table on the Palestinian issue as well as on a broader Arab-Israeli peace, but the organization itself is being excluded. Yet the PLO can hardly afford to reject the initiative, considering that all the relevant Arab states have approved it. Saying 'yes,' however, could be just as detrimental, say Western and Arab observers. "If [the PLO] says no, [it] should be able to offer an alternative to end the suffering of Palestinians under occupation. Moreover, it cannot afford to be the obstacle in [a] process that will solve the problem," says a Palestinian political scientist in Jordan. According to PLO officials, not only is the organization's role as "sole representative of the Palestinian people" at stake, but also the possibility that Israel and the Arab world will end their state of belligerency without solving the Palestinian issue. "By excluding the PLO, the US and Israel may be aiming at excluding the main issues of an Israeli withdrawal and ... Palestinian national rights," says Jamil Hilal, head of the PLO information department in Tunis. PLO officials also believe the organization cannot approve the process without having an idea of where it is heading. "We simply cannot proceed to to the unknown. It will be like a jump into the darkness," says PLO executive committee member Abdullah Hourani. The main challenge for the US, Israel and some pro-US governments, according to Western and Arab analysts, has been to find Palestinians who will take part in the talks without PLO approval. The US and Israel insist that the Palestinians be represented by officials who are neither PLO members nor residents of East Jerusalem, and rule out delegates from the Palestinian diaspora. So far, prominent Palestinians have repeatedly and publicly declared that their participation hinges on the PLO's approval - a point that has given the leadership in Tunis confidence that it cannot be totally excluded. "We know that none of the Arab governments has even raised the question of the PLO role with Washington," says Mr. Hourani, alluding to the organization's loss of standing among Arab governments, "but we challenge all the parties to find one Palestinian who will take part without the PLO consent." The US and Israel say the Palestinians must be part of a joint Jordanian-Palestinian team. The PLO continues to insist on its right to name delegates and chart the Palestinian negotiating position at the conference, tentatively scheduled for October. The result of the PLO drive to get better terms will only be seen when and if the proposed Palestinian-US memorandum of understanding is written. Last week, three US officials met in the Israeli-occupied town of Ramallah with Palestinian leaders Faisal Husseini and Hanan Ashrawi. The two Palestinians, who are very close to the PLO, later said that they asked the US to pressure Israel to stop building settlements in the occupied territories. Palestinian officials in Tunis say the two Palestinian leaders were seeking US acceptance of the PLO's right to appoint the Palestinian delegation. Also, they sought a clear written interpretation by the US that United Nations Resolution 242 means an Israeli withdrawal from all of the occupied territories including East Jerusalem. (The Israelis have annexed East Jerusalem and consider it a part of the country.) The Palestinians also want the US to acknowledge that a "complete withdrawal" means the removal of all Israeli military facilities from the territories. They also want a US statement acknowledging that Palestinians have a right to self-determination leading to an independent state. Washington is not expected to accept the last demand, but one anticipated compromise might be some kind of association between the Palestinian territories and Jordan. The PLO is discussing the results of the Ramallah meeting in Tunis. Palestinian officials said that the leadership will also decide when to reply to King Hussein on whether it approves the formation of a joint Jordanian-Palestinian delegation. "But if the conditions remain very bad," says one PLO official who preferred anonymity, "and we do not see any hope for a solution that can meet the minimum of our people's rights, then it will be more dangerous for the PLO to say yes than to say no."