PLO chief Yasser Arafat was quoted Friday as saying Jerusalem will of necessity be the capital of a future Palestinian state.

The remark came as leaders of the Palestine Liberation Organization were trying to counter reports that they might make territorial concessions in exchange for a Palestinian state.Algeria's official APS news agency Friday quoted Arafat as saying the only way to resolve the Palestinian issue "is that the Palestinian emblem be mounted on the rooftops, minarets and belltowers" of Jerusalem as the capital of an independent state of Palestine.

Israel captured Arab east Jerusalem in the 1967 Middle East War and later annexed the area, unifying the city. It considers Jerusalem as its capital.

In his quoted comments Friday, Arafat repeated denials of recent reports that his group might make territorial concessions in the Israeli-occupied West Bank and Gaza Strip for a Palestinian state.

British news organizations quoted another Arafat aide, Bassam Abu Sharif, as saying such concessions could be in order. Sharif and others later said it was a misinterpretation.

In an interview Thursday with the New York Times, Arafat said he and the PLO were "more popular than ever." He denied there was widespread unhappiness within and outside the PLO with his stance on the war and with the quality of his leadership, the Times said.

"Among our people we are at a peak," Arafat said. "With the Arab masses, at a peak; with the Moslem nation, we're at a peak, and throughout the third world."

Arafat defended his alignment with Iraq during the gulf war by saying "I follow my people. It's impossible to be a democrat and not follow the direction of the people. Some people found excuses for King Hussein because he has Palestinians in his country. OK, I have all of the Palestinians."

The Times said Arafat declined to condemn an attack by a PLO group on an Israeli beach last year, a refusal that led the United States to suspend dialogue with the organization last June.

Arafat questioned why the United Nations demanded Iraq's unconditional withdrawal from Kuwait but far less of Israel in the case of the Palestinians.

"There is one standard for us and another for others," he said. He pointed out that nine Arab leaders had stood with Saddam and asked "Does George Bush want to change all of them?"

Arafat said he would not step aside as leader of the PLO unless the majority of Palestinians wanted him to.

"I have many cards to play," he said. "And my trump card is my best - my people's support. As long as I have 50 percent plus one, I am not leaving."