The announcement means that when Israel and the Palestinian peace team sit down together at the next round of talks - which Washington says will happen next month - the Israeli side will no longer be able to pretend that they are not talking direct to the PLO. If the Israeli negotiators do not walk out, Mr Arafat will have achieved a dramatic political coup: de facto recognition of the PLO by Israel.
Until now Israel has refused to talk direct to the PLO, which it still terms officially a 'terrorist' organisation. Instead Israel talks to Palestinian leaders from the West Bank and Gaza, ignoring the well-known fact that they are PLO in all but name.
In recent months, however, Israel has shown a sudden softening towards the PLO leadership, which increasingly looks to the Israeli government like a bastion of moderation in comparison with radical Palestinian Islamic bodies.
Barriers which keep Yitzhak Rabin, the Israeli Prime Minister, and Mr Arafat apart have been removed at such a rapid rate that the prospect one day of a Rabin-Arafat summit has moved from the realm of the impossible to the conceivable.
Last night's announcement from PLO headquerters in Tunis said seven Palestinian negotiators from the Israeli occupied territories had become members of the PLO leadership committee directing the peace talks. These included Faisal Husseini, the Palestinian leader in the occupied territories, and Hanan Ashrawi, the delegation spokeswoman.
Exactly how Mr Rabin will react to the news was not clear. Government spokesman, Uri Dromi, was guarded in his reaction, but suggested that Israel would not look 'favourably' on such a ploy.
However, Mr Arafat must have carefully calculated that in view of the change in Israeli attitudes to the PLO, and Israel's impatience to make progress in the talks, the Israeli negotiators are unlikely to walk out. After all, the Palestinians sitting opposite them at the next round will not be in any way different to those present at previous rounds. They will simply have 'come out'.
The announcement from Tunis comes at the end of a crisis week for the PLO. While clearly aimed at winning direct contacts with Israel, the appointment of the seven Palestinians to the organisation - to be seconded to a leadership committee directing the peace talks - is also aimed at ending an internal power struggle.
On Sunday three of the peace team, Mr Husseini, Mrs Ashrawi and Saeb Erekat, a senior negotiator, threatened to leave the negotiations, angered by their lack of influence on how policy is decided. The executive committee of the PLO met yesterday and rejected their resignations.
By officially bringing the three rebels inside the PLO fold, and promising greater co-ordination with the occupied territories in peace talks policy, Mr Arafat has effectively bonded the 'inside' Palestinian leaders more closely to his 'outside' power-base.
When he left the executive committee meeting earlier yesterday Mr Husseini sounded like a man who had felt the crack of the whip, saying he promised, from now on, to bow to Tunis and 'to work within the line expressed by the PLO'.