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Chancellor Bruno Kreisky of Austria and Palestine Liberation Organization chief Yasir Arafat were reported Monday to be meeting at Palma De Majorca, the Spanish island resort. Observers in Spain believe their meeting is somehow connected with efforts to obtain the release of seven Israeli prisoners of war held by the PLO.

Arafat was greeted at Palma airport by the island’s governor and the mayor of the town. He was driven to Kreisky’s villa on the Costa De Blanes near Palma.

An Austrian spokesman refused to say what the meeting was about or to comment on a report in the current issue of Newsweek magazine that the Israeli POW issue was being discussed in Vienna.