When tensions started between Iraq and Kuwait in the second half of 1990, Arafat unsuccessfully tried to mediate between the tow countries. After the invasion, the Palestinian position seemed to strengthen when a parallel could be drawn between Kuwait and Palestine: if Iraq could be forced to submit to UN resolutions, then the same should apply to Israel. However, when the war broke out in 1991, it was obvious that the Palestinian people were standing by Iraq. This support deprived the PLO of the financial support of the rich Gulf states, who opposed the Iraqi regime.
Relations between the United States, pro-western Arab states and the PLO severely deteriorated at the time of the Iraqi invasion of Kuwait and the subsequent Gulf War. The reason for the deterioration was a simple one: Arafat declared his support for Iraq.
After the Gulf War, in July 1991 the Syrian-backed Lebanese army forced the PLO to retreat from its positions in southern Lebanon.
In January 1993, Israel repealed its ban on contact with the PLO and later in the year, in September, Arafat and the Israeli prime minister, Yitzhak Rabin, agreed to the signing of a peace accord that introduced some Palestinian self-rule in the occupied territories.