EASTERN Jerusalem's future is emerging as the most emotional, violence-prone issue for the Palestinians. This passion has become one of the peace process's most important elements, and potentially its downfall.

How do Palestinians view the Jerusalem question? On one level, the answer is very simple: Eastern Jerusalem must be the capital of a West Bank/Gaza Palestinian state. This formula is constantly repeated by Palestinian Authority (PA) officials and average citizens alike. There are three bases to the Palestinian Arab claim over the eastern part of Jerusalem.

Ironically, the religious factor - which has become the most powerful by far, is the most factually shaky. It is easy to show the religious limits to Jerusalem's Islamic importance. Except for the single incident of Mohammed's journey to Heaven - whose meaning has grown for largely political reasons in recent times - the city's only significance to Moslems derives from its prominence for Jews and Christians. The often--cited claim that Jerusalem is the third holiest city for Moslems is unfounded. In fact, this growth in Jerusalem's Islamic centrality can be traced directly to a 1931 conference organized by Palestinian nationalists to mobilize support from Moslems everywhere.

The Palestinian fundamentalists, who argued that all the land from the Jordan River to the Mediterranean Sea is equally sanctified, are also newcomers to making any special claim for Jerusalem.

In terms of the current situation, critiquing this point is largely academic. Moslems have become convinced that eastern Jerusalem is an Islamic holy place, and this is an important factor motivating their behavior. The September riots demonstrate that fact. This offers important clues to Jerusalem's contemporary role for Palestinians: It is one of the few cards they have left to win foreign backing at a time when they have so little of it.

One of the few things the two sides have in common is that both Israel and the PA oppose any internationalization of Jerusalem. In addition, the incredible emotive power of Jerusalem is an incredible mobilizing tool for PA head Yasser Arafat among the Palestinians themselves. By waving this banner, he can overcome internal divisions and outshout domestic criticism. This is exactly what he did, most effectively, by encouraging last September's confrontation.

The Palestinian second pillar in asserting their rule over eastern Jerusalem is historical. Arabs ruled Jerusalem for over 800 years. The struggle against the Crusades heightened the city's psychological significance. While never an Arab capital or cultural center, Jerusalem was certainly a very important emblem, a good preparation for its symbolic importance today.

But the first two claims loom large in the contemporary Israel-Palestinian and Middle East situation, they also pose a possible problem for the Palestinians themselves. After all, if Jerusalem is so potent a symbol for Moslems and Arabs, where is the distinctively Palestinian identity there? Of course, the PA argues that it is the city's rightful guardian on behalf of Islamic and Arab interests. But others could make the same claim.

This is why the Palestinian claim's third portion - its national aspect - is so indispensable. Outside of the Jewish Quarter and the new Jewish suburbs, eastern Jerusalem is clearly a Palestinian city. It also has the most populous metropolitan area and is the only important urban locale within the would-be Palestinian state's territory. It is home to much of the Palestinian elite. Without eastern Jerusalem, a Palestinian state would be a collection of towns and villages. Moreover, asserting Jerusalem's primacy is a way to overcome the strong localism which still pervades Palestinian society. Only Jerusalem can assert its primacy over Hebron and Nablus or other places; only Jerusalem might overwhelm the potential rivalry between Gaza and the West Bank. In short, its population, prestige, capacity to mobilize activism, as well as Arab and Islamic recognition, make eastern Jerusalem indispensable to the PA as part of any political solution. And under the Oslo accords, Arafat (like Israel) has every right to claim eastern Jerusalem.

HOW DOES the Arab world view this Palestinian position on eastern Jerusalem? In general, it gives the PA complete, albeit largely verbal, support. Morocco, as chair of the Arab League Jerusalem Committee, and Saudi Arabia, given its intense religious orientation, are especially interested in the subject. The sole exception here is Jordan, which has its own claim on the city - which it governed between 1949 and 1967. As part of its pattern of preserving the status quo in the territories, Israel left control of the Islamic holy sites to a committee appointed from Amman. The Israel-Jordan peace treaty confirmed this arrangement.

Thus, as long as Israel stays in eastern Jerusalem, so does Jordan's presence. Obviously, the PA views Jordan's role and ambitions with distrust. King Hussein asserted his continued interest in eastern Jerusalem by financing the regilding of the Dome of the Rock's roof. Only a few weeks ago the PA showed its desire to erode any Jordanian involvement when some of its agents tried to take over the Wakf office which runs the holy sites, and expel Jordan's appointees. Amman appealed to Israel to repel this incursion.

While maintaining a rearguard action, though, Jordan cannot realistically be expected to challenge most of the Arab world in trying to regain control of eastern Jerusalem. This is especially so in light of the king's 1988 decision to drop his claim to the West Bank. Certainly, Jordan will want to maximize its influence over the Arabs west of the river.

But it does not seem to provide a realistic alternative for Israel to dealing with the Palestinians on this issue. The Palestinian claim on eastern Jerusalem is not going to go away. Most Israelis want to maintain the city's unity under Israel's control - as Jerusalem has been governed since 1967. Whatever that position merits, however, it should be clear that a refusal to make any concessions will ensure the peace process's failure. But many outside observers often forget that the same principle applies to the Palestinians. They, too, must make some compromises with Israel's position, needs, and public opinion. Otherwise, Israel will simply continue to control Jerusalem and - in the absence of a negotiated settlement - the territories as a whole.

WHAT FLEXIBILITY might be expected from the PA in its own efforts and necessity to reach an agreement? The key to the answer - albeit remarkably complex and difficult - is that in maintaining that they will attain Jerusalem as their capital, the Palestinians must define "Jerusalem" and "capital." From the Palestinian standpoint, there are six critical issues:

Israel's Position. What, if anything, will Israel agree to cede in exchange for its other demands regarding Jerusalem? If the answer is absolutely nothing, the PA will not make any concessions either. Without entering into the merits of Israel's stance that Jerusalem must remain its undivided capital, maintaining that Israel must have unrestricted sovereignty over all of Jerusalem will mean that no agreement is possible and the peace process will collapse. Neither the Palestinians nor the Arabs in general will endorse any agreement which gives them nothing more on Jerusalem than they have now.

Defining east Jerusalem. This depends on how one draws the city's boundary lines which were expanded by Israel. The PA is also probably little interested in trying to absorb the new Jewish suburbs such as Ramot, Gilo, Ramat Eshkol, French Hill, and so on, whose Jewish residents outnumber the Arabs living in the city. In exchange for Palestinian control of the Arab neighborhoods, it would cede these sections.

Who will govern the Arab-populated sections of east Jerusalem, including the Old City and the Temple Mount? The PA's real starting point in negotiations is to demand sovereignty over this area. It might well concede control of the Jewish Quarter, including the Western Wall, if given the rest. Again, though, if Israel does not make concessions, neither will the PA.

Defining the concept of a Palestinian capital. This could mean the PA would accept having its administrative center in part - perhaps even a nominal part - of eastern Jerusalem. There is again an irreducible minimum that might be acceptable here.

Definition of sovereignty. PA rule over Palestinian neighborhoods might be restricted in various ways, perhaps to a form of local government with participation of these residents, as Palestinian citizens, in "national" politics.

How to keep the city functionally united and secure even with split control? There are many plans conceivable here, with the problem that what looks good on paper may be unworkable in reality.

IN THE end there is a paradox. If both sides refuse to concede anything, an agreement on Jerusalem is impossible. If there is no agreement on Jerusalem, then there will be no peace treaty. Conflict and bloodshed will continue.

At the same time, it is hard to conceive of a middle ground which is acceptable to public opinion on either side, and it is also difficult to find a solution which can actually work. The PA's position may not be inflexible in translating its basic principle - eastern Jerusalem as an integral part and capital of a Palestinian state - into an agreement. But it will not accept the status quo. And like Israel, the Palestinians will only give up things if they also get things.

During 1997, the debate on Jerusalem, both between and within the two sides, will no longer be an abstract discussion. Rather, it will be the seemingly immovable object blocking the road to peace.