Argues that the Palestine Liberation Organization under Arafat's leadership has signaled readiness for negotiations with the Israelis. However, there are political and psychological reasons for the continuing ambiguity and inconsistency of these signals. Analysis of Arafat's cognitive style and image of the enemy, as revealed in 2 lengthy conversations with the author, reinforces the hypothesis that he has the capacity and will to negotiate an agreement with Israel, based on mutual recognition and peaceful coexistence, if offered necessary incentives and reassurances. (14 ref)