The PLO's parliament-in-exile proclaimed an independent Palestinian state Tuesday, and PLO chief Yasser Arafat said the decision now puts "the ball . . . in the American court."

The Palestine National Council made the declaration early Tuesday, approving a new political program that indirectly recognizes Israel.Council delegates broke into applause, and the occasion was immediately followed by quiet handshakes, kisses and an occasional tear.

At a news conference later, Arafat described the council meeting as the "intefadeh (uprising) session," referring to 11 months of unrest by Palestinians in the Israeli-occupied West Bank and Gaza Strip.

"But it could also be the session of peace with the U.S. Administration and Israel," he said.

In a more threatening tone, he added: "Let it also be clear I can always come back to our (council) and declare that moderation does not pay."

"Our political statement contains moderation, flexibility and realism, which the West has been urging us to show, Arafat said. "The ball is now in the American court."

Earlier Tuesday, Israeli troops sealed off the West Bank and Gaza Strip, where Arab youths took to the streets to celebrate the declaration and underground leaders of the Palestinian uprising called a general strike.

In the West Bank town of Bethlehem, under curfew for the first time since 1967, teenagers ignored threats of fines and jail terms to run through the streetssetting off fireworks and singing a nationalist song.

Arafat did not describe the new state's borders, except to say that a 1947 U.N. plan that provided for separate Jewish and Arab states in Palestine still provides the basis for "international legitimacy." The Palestinian territory referred to in the declaration presumably meant the West Bank and Gaza, captured byIsrael in 1967 Middle East war.

Passage of the proclamation could mark a turning point in the four-decade struggle through repeated Arab-Israeli wars and recurrent guerrilla attacks. Israel gained independence in 1948, when British rule ended.

The Palestine Liberation Organization declaration will not necessarily have any immediate effect because the PLO is unable to challenge Israel for actual control, either in the occupied territories or in Israel proper.

PLO leaders consider it rather as a historic step toward creation of an independent state in the West Bank and Gaza.

Israel rejected any change in its attitude toward the PLO even before the new policy was officially approved.

"It's not a problem of definition and formulations of various positions," said Prime Minister Yitzhak Shamir. "We'll not negotiate with them because they're opposed to peace with Israel."