THERE is no other Arab state whose stability has been so closely linked to the Palestinian problem than Jordan. King Hussein is tied to the fate of the conflict for two reasons: The US and Israel view him as the only Arab leader who can realistically lead the Palestinians in negotiations with Israel; and Israeli hard-liners see Jordan as the substitute homeland for the Palestinians.The king confronts many pressures. A mass Palestinian exodus from occupied lands due to increased Jewish settlement and continued Israeli control could indeed result in the creation of a Palestinian state in Jordan. The country has also faced an influx of some 300,000 Palestinians expelled from the Gulf in retaliation for Palestine Liberation Organization (PLO) support for Iraq's Saddam Hussein. The economy is near collapse, leaving Jordan dependent on the West and other Arab states. Jordan has thus accepted the leading role in a joint Jordanian-Palestinian delegation, and is seeking a peace settlement seen as essential to its survival. Beyond the Palestinian issue, Jordan seeks resolution of conflicts with Israel over Jordan River water. The kingdom has been been closely tied to the Palestinian issue since the creation of Israel after World War II. The area's Palestinians refused to accept a United Nations plan for partitioning Palestine, and the West Bank was put under Jordanian control. Its rulers have since sought to maintain ties with the West while pursuing policies that did not conflict with Palestinian aspirations for a national identity. But after the loss of the West Bank in the 1967 war, Hussein faced a growing Palestinian resistance movement which tried to transform Amman into its base for recovering the lost lands. Growing internal conflict led the King to expel the armed Palestinians, and relations with the PLO have seesawed over the years. But Hussein's 1988 renunciation of responsibility for the West Bank in favor of Palestinian claims restored his popularity, enabling him to take a lead in the peace process.