Arafat pays price for cash crisis: Palestinians are growing critical of the PLO as money runs out, writes Sarah Helm from Nablus

IN THE small stores of the old city, or kasbah, of Nablus, young Palestinians are committing heresy: they say they want Yasser Arafat out.

'He should give way to a younger man. He doesn't care about people like us,' said Samer Shbitak, 20, displaying his old intifada wounds, and watching nonchalantly as three Israeli soldiers harass youths at his door. Mr Shbitak, like thousands of other Nablus youths, once wore the the garb of the intifada, stalking the roofs in hoods and keffiyehs, during the kasbah's finest hour of resistance to the Israeli occupation. Now he wears a Levi Strauss sweatshirt and white loafers, as he mans an empty till, talking to a few other youths about corruption in the Palestine Liberation Organisation and the need for democracy within the PLO.

Mr Arafat cut off the money for the armed struggle and told them to give diplomacy a chance. But taming the kasbah has not achieved anything, they say. What is more, even the families of kasbah martyrs and wounded no longer receive PLO money: Mr Arafat has run out of cash. The 'fat cats' of Tunis, the PLO headquarters, are viewed here with little but scorn.

The political activists of Nablus are also complaining about Mr Arafat. Their offices, too, are being starved of funds and workers are being laid off. And at the town's al-Najah University, a bastion of PLO support funded by Tunis, there is also new cynicism. The money is running out, academics are paid out of pension funds, and student fees are to go up 50 per cent.

Nablus, the biggest city in the West Bank, has always been a stronghold of Palestinian nationalism, a place where few would dare to question the authority of Mr Arafat and where the Islamic movements have gained little support. In the past the name Abu Amar - Mr Arafat's nom de guerre - has provoked a kind of mythical reverence as the ultimate symbol of Palestinian unity. Today, however, the name is no longer sacrosanct, and Hamas, the Islamic Resistance Movement, gained two seats in Chamber of Commerce elections.

Yitzhak Rabin, the Israeli Prime Minister, should be celebrating this new disillusion with Mr Arafat. For years successive Israeli governments have tried to isolate the PLO, refusing to negotiate directly with Tunis. Traditionally, Israel has regarded the PLO as the most extreme 'terrorist' organisation, and has tried to build up alternative Palestinian leaders, people from inside the occupied territories.

The truth, however, is that the faltering support for Mr Arafat presents Israel with an acute dilemma. New political realities have suddenly made him the most eligible partner in negotiations. Last week Mr Arafat cracked the whip on the latest 'alternative leadership' - promoted by Israel - calling into line three rebellious members of the Palestinian peace delegation: Faisal Hussein, Hanan Ashrawi, and Saeb Erekat.

And the rise of militant Islamic groups has made Mr Arafat look like moderation itself. This week, in a significant concession, the Israeli government announced that it did not object to the Palestinian peace negotiators being formally named as PLO officials. Such a move should bode well for the talks - except that it comes at a time when Mr Arafat's grass-roots support is weakest.

The main cause of Mr Arafat's falling support is the failure of the peace process - which he has so strongly backed - to produce any obvious benefits for Palestianians. 'He doesn't understand our suffering,' is a common complaint.

This alone, however, would not have been enough to break the loyalty to Mr Arafat. Palestinians are used to political disappointments. What has brought about the open criticism is a more concrete problem: financial hardship.

After the Gulf war, the oil- rich emirates and Saudi Arabia expelled Palestinian workers and cut funding of the PLO to punish Mr Arafat for supporting Saddam Hussein. In recent months the effects have begun to be felt throughout the West Bank and Gaza Strip.

According to United Nations figures, there has been a cut of dollars 450m ( pounds 300m) in money sent home to Palestinian families from Gulf workers since the end of the war, and a drop of dollars 750m in direct aid from Gulf states to PLO institutions in the occupied territories.

The loss of funding has affected universities and hospitals, led to the closure of clinics and newspapers, and ended welfare payments to 50,000 families in the occupied territories.

The effect of the cuts in the occupied territories is only too easy to see. The funding was essential for many services and Palestinian social institutions have been sources of pride, and symbols of 'independent' national identity. Some disillusioned PLO supporters are turning to Hamas, which is building up its institutions. Others who stay with the PLO are asking hard questions for the first time: is PLO policy right? Is the PLO well managed? Where is the democracy? Why not return to the armed struggle?

From now on the ability of Mr Arafat to win back his status on the street will depend, in part, on how much Israel and the United States decide they need the 'old man'. Only Washington can persuade the Saudis to fund the PLO again. And only Washington can persuade the Israelis to make concessions in the talks to revive Mr Arafat's political credibility. If they do not move fast it may be too late. If and when a peace deal is signed, Mr Arafat may not be able to 'deliver' Palestinians on the streets.