Renewed Respect For Israel In the wake of Iraq's invasion of Kuwait, the Jewish state is looking better and better to Congress and the Bush administration. JAMES D. BESSER Washington Correspondent A s U.S. forces took up defensive positions in Saudi Arabia last week, this is the way things shook out in Washington: Yassir Arafat and the PLO were the big losers, Israel was the big win- ner and U.S. participation in the Middle East peace process is on hold. But at the Department of State, despite all evidence of Israel's strategic importance and the fluidity of Arab allegiances, there are few signs of a softening of attitude toward the Jewish state. Just two months ago, Washington was seething with the debate over whether or not the administration should break off the dialogue with the Palestine Liberation Organization. Only after strong pressure from the pro- Israel community — and after the abortive attack by a PLO faction on a beach near ml Aviv — did the administration suspend the talks in Minis. Arafat And The PLO Yassir Arafat may have sealed the fate of the suspended peace talks by lining up 22 FRIDAY, AUGUST 17, 1990 squarely behind Hussein — a move that should effectively end his two-year cam- paign to portray himself as a legitimate member of the international community.- Last week, the PLO further estranged itself from Washington by joining Iraq and Libya in rejecting the Arab League's un- precedented decision to send troops to Saudi Arabia. "The big losers in this may be the PLO," said Barry Rubin, senior fellow at the Washington Institute for Near East Policy. "Yassir Arafat is Hussein's number one al- ly in the Middle East. This will have a definite effect on U.S. thinking, as well as Israeli thinking. Arafat has, in effect, thrown away the political capital of the in- tifada." But Mr. Arafat's problems are - not just political. The PLO may lose money because of his embrace of Hussein. "The PLO loses not just because of U.S. and Israeli mistrust, but because Arafat is making the Gulf Arabs and the Egyp- tians very angry," Mr. Rubin said. "Frank- ly, I don't see the Saudis giving the PLO money any more. Plus, the PLO won't get