In denying Palestine Liberation Organization chieftain Yassar Arafat a visa to enter the U.S. and speak to the United Nations, the administration this week held fast to a principle - refusing to allow a "terrorist" into the country or to have a forum on American soil.

That principle is understandable and even praiseworthy, but in Arafat's case, the denial may end up doing Arafat and the PLO more good and the U.S. more harm than any visa or speech might have done.The State Department, in denying the visa, did not say Arafat himself was a terrorist, but said he "knows of, condones, and lends support to" terrorist activities. In a certain sense at least, that is true. Arafat knows and sometimes meets with some PLO leaders wanted for terrorism.

Yet the PLO is not a monolithic body; it has factions, splinter groups, terrorists, power struggles, and even bloody wars in its own ranks.

Arafat, in recent years, has tried to remove himself from being tainted by some of the things done in the PLO name, and recently made moderate statements backing long-standing U.N. resolutions guaranteeing Israel's right to peaceful existence. At the same time, in order to hold the PLO together, he has taken care not to reject outright various PLO factions, no matter how unsavory their actions.

This association and involvement has left Arafat with a somewhat less-than-respectable reputation.

Despite this, the refusal to grant Arafat a visa to speak to the U.N. may be a mistake on a number of accounts. For example:

- The question before the U.N. is the validity of an independent Palestinian state in the Israeli-occupied West Bank, a nation proclaimed by the PLO Nov. 15 and already recognized by a number of nations. As PLO spokesman, no matter how distasteful to many, it's hard to justify excluding Arafat from an international debate over the future of a Palestinian homeland.

- On a broader base, the U.S. may be violating the 1947 agreement under which it serves as the host country for the United Nations. By denying Arafat a visa, it can be argued - is being argued - that the U.S. is interfering with U.N. business. Many nations, including good friends of America, have bitterly protested the visa decision.

- In response to the visa rejection, the United Nations General Assembly is moving swiftly to hold - for the first time in U.N. history - one of its sessions away from the U.N. headquarters. The gathering is tentatively planned for Geneva, Switzerland. Such a meeting is tantamount to saying, in a most dramatic and visible way, that the U.S. is not a suitable place to conduct international business.

- Speaking at the United Nations is not necessarily some kind of honor and certainly not a stamp of approval. Tyrants and despots and shady characters of various kinds have spoken there as part of the passing international parade. For that matter, having Arafat speak at the U.N., would not have set a precedent. He spoke to the General Assembly back in 1974.

All in all, the refusal to grant Arafat a visa will provide the PLO chief more publicity, more sympathy, and give greater weight to his words, while engendering more ill will for the U.S., than letting him make his speech in New York could ever have done. Somehow, that does not seem like the fruits of wise diplomacy.