MR. LEHRER: The breakthrough decision of the United States to talk to the Palestine Liberation Organization is our story tonight. The decision was announced last night by Secretary of State Shultz. It followed statements of PLO Leader Yasser Arafat that Shultz said met long- standing American conditions for dialogue. We will be hearing from the Israeli Ambassador to the United States, an American member of the Palestine National Council, and the State Department's top Middle East Official. They will be followed by an analysis from an Arab expert by former Israeli and American officials. The Israeli Ambassador to the United States, Moshe Arad is first.

MR. LEHRER: Mr. Ambassador, welcome.

MOSHE ARAD, Israeli Ambassador: Thank you.

MR. LEHRER: You heard what President Reagan said today, that Israel need not be concerned about this decision because the U.S. has not retreated one inch from guaranteeing the safety of Israel. How do you respond to that, sir?

AMB. ARAD: Well, we are very reassured and I think very heartened by the statement made by the President, by the Vice President, the President- elect and by the Secretary of State last night. However, I think we are witnessing here a change in American policy which for us is of course a source of concern. I'm not suggesting that this is going to bring about a crisis in the relations between Israel and the United States. I feel that in the relationship that we have with the United States, which is vast, which is deep, which encompasses so many areas from strategic cooperation to a free trade area and from cooperation between the respective defense establishment of our two countries, such a development can be absorbed, can be debated. We had such events in the past and we did overcome such problems.

MR. LEHRER: What is the potential harm of the United States just talking to the PLO?

AMB. ARAD: The potential harm is in the perception that some Middle Eastern nations might have that they might draw a wedge between Israel and the United States, and perceptions in the Middle East are as important as reality. And the second element that concerns us is the fact that, indeed, Mr. Arafat spoke those magic words but when you read also the speech which he made a day earlier at the United Nations General Assembly, the whole distortion of the facts of the political events and the history of the last 40 years, his constant reference to Israeli society as a society which is very similar to a fascist society, as a society which is aggressive, which is colonial, as a country which imposes its will by the power of arms into this area, you can, you may reach a conclusion that actually in his approach, in his viewing the Israeli reality, nothing has changed.

MR. LEHRER: You mentioned that this was a change in U.S. policy. It has been the policy, as you know, of the United States for 13 years that they would talk to the PLO once certain conditions were met and Israel was aware of that. Why the concern now just because they have been met at least in the eyes of the United States? You knew it was coming.

AMB. ARAD: We knew it's coming and I would be less than candid if I pretend otherwise, but knowing that it's coming, you also like I would also to test it, to put it to the test as against other statements made by Mr. Arafat, or if not Mr. Arafat by his lieutenants, by his associates, or Mr. Arafat, himself, just a few weeks ago in which he referred to Israel as a racist state. Is there a real change of heart and of mind with Mr. Arafat, or of the PLO leadership? I doubt this very much. And while I can understand that the United States has lived up to the conditions which it set back in 1975, the realities that we live with, the violence that we are confronted with, is very much part of the realities of lives that Israelis are experiencing.

MR. LEHRER: Well, what then do you think the United States is up to? You say it doesn't hurt the relationship. How can it not hurt the relationship if Israel feels as strongly as you do and the folks back in Israel feel, isn't this a terrible thing to the relationship? AMB. ARAD: No, I didn't say it didn't hurt. I don't say that this is not a development which we would have preferred not to occur, but this is not the kind of crisis that we cannot overcome. It is a development which we found it premature, we would like to see how they live up to, live by their deeds to their words, and, indeed, I think what President Reagan said today was reassuring to us. But what our experience with the PLO is quite different.

MR. LEHRER: Are you concerned at all with the fact that since Secretary Shultz made that announcement yesterday, without exception, at least I couldn't find anything in looking at the wires today, without exception, every nation in the world in Western Europe, allies of Israel, as well as the United States, have praised what the Secretary did?

AMB. ARAD: It's not the first time that Israel finds itself in a minority position. It's not the first time that few of the other countries relative or relevant to the conflict, to what's happening in the Middle East is a view of to a certain detachment. We are dealing with our own future, our own security. Of course, I was also reassured that Secretary of State Shultz has informed the Prime Minister and the Foreign Minister that the object of these meetings would be to see how an advancement towards the peace process can be achieved. But we are concerned with the fact that this decision would send the wrong signal to those elements in the PLO and to Mr. Arafat, thinking that he can do what he has done for the last several years, speak softly in the West and carry a big stick when it comes in dealing with us, and this is our experience. I mean, I am not talking about our imagination. I'm speaking about what had happened and it's still going and happening in the territories and in Israel proper.

MR. LEHRER: Mr. Ambassador, thank you.

AMB. ARAD: Thank you.