Undated (AP) _ King Fahd and President Hosni Mubarak of Egypt met for talks Monday in Jiddah, Saudi Arabia, on Iraq's occupation of Kuwait, diplomatic sources said, as world capitals buzzed with reports that the Saudis were talking concessions.

On Sunday, Saudi Defense Minister Prince Sultan insisted on an unconditional Iraqi pullout from Kuwait, but suggested that in the post- withdrawal stage, negotiations could be held to consider Iraq's long- standing border dispute with Kuwait.

The prince said that ''rights, whether valid or doubtful'' could always be discussed, but only after Iraqi withdrawal.

Some reports quoted Sultan as saying Arab nations were willing to grant Iraq ''all its rights,'' but a reporter for The Associated Press who covered the speech said ''all rights'' was not mentioned.

Some quarters took the prince's remarks as a sign that the Saudis were ready to agree to territorial concessions by Kuwait. This was a factor in oil prices plunging $5.41 a barrel on the New York Mercantile Exchange, to close at $28.38.

Before invading Kuwait on Aug. 2, Iraq demanded territorial and financial concessions from the oil-rich emirate, including claims to the Kuwaiti islands of Warba and Bubiyan on the Persian Gulf and to the Rumailah oil field. Most of the field is in Iraq but a disputed section runs two miles inside Kuwait.

Speculation grew so intense about the Saudi position that the information office of the Saudi Embassy in Washington issued a release Monday titled: ''Clarification of Statements Made by His Royal Highness Prince Sultan.''

It said that Sultan ''declared to the Saudi Press Agency today (Monday) that some news agencies have wrongly interpreted certain elements of his speech addressing the Arab journalists on Sunday . . . and their analysis contained a clear distortion of the intended meaning.

''To clarify the misinterpretation, His Royal Highness said that he meant to convey that . . . Saudi Arabia has in the past, through good will, resolved its respective border problems with Iraq, Jordan and the United Arab Emirates by cordial and mutual understanding.

''Regarding the Iraqi aggression on sisterly Kuwait, the Kingdom declared its absolute rejection of the said aggression, and reiterates its total commitment to all Arab and international resolutions calling upon Iraq to immediately, completely, and unconditionally withdraw from Kuwaiti territory, and restore its legitimacy under the leadership of HRH Prince Jaber Al-Ahmed Al-Sabah.''

The diplomatic sources in Saudi Arabia, speaking on condition of not being further identified, said Fahd and Mubarak agreed that Iraqi withdrawal and restoring the al-Sabah family rule in Kuwait could be followed by negotiations on the bilateral disputes that preceded the invasion.

Mubarak met Fahd at the Saudi resort of Jiddah on the Red Sea. The Egyptian leader arrived Monday and visited Egyptian troops deployed with multinational troops after Iraq invaded Kuwait and massed troops on the Saudi border.

The two agreed that continued Iraqi refusal to withdraw from Kuwait would hurt the Arab world's leading cause - the Palestinian problem, the sources said.

''They saw that the continued Iraqi refusal to respond to peace calls will harden the splits in Arab ranks and dissipate the Arab and international concern about the principal Arab cases led by the Palestinian problem and the situation in Lebanon,'' one diplomatic source said.

Mubarak went to the northeastern region of Hafr al-Batin at the start of a visit to Saudi Arabia, his first overseas trip since Iraq's invasion of Kuwait. He is to go to the United Arab Emirates on Tuesday.

At least 14,000 Egyptian troops are deployed to the multinational forces. Mubarak has said the number might increase, and Maj. Gen. Mohammed Ali Bilal, the Egyptian commander in the kingdom, said he expects the size of Egypt's force here to reach 20,000 by the end of October.

The forces from Western, Islamic, Arab and gulf countries number about 300,000. The Iraqi force assembled in and around Kuwait since the invasion has exceeded 400,000.

Sultan had told a gathering of Saudi newspaper editors Sunday that anything short of an unconditional Iraqi pullout from Kuwait and return of the Al-Sabah family to power ''is unacceptable and rejected by the gulf states in particular and by most of the Arab and world nations.''

He said he was troubled by the suffering trade sanctions were causing Iraqis, but convinced that was a far better thing than war.

''It causes us deep pain to see the Iraqi or any other nation facing a worldwide trade embargo,'' he said. ''But the premise for the embargo is peace, not war. Perhaps it is meant to spare the shedding of Iraqi blood.''

Prince Sultan, third in the Saudi leadership after Fahd and Crown Prince Abdullah, said the foreign forces amassed following the invasion of Kuwait ''brought an umbrella of peace.''

He denied any plans to form an Arab-Western security alliance in the region. ''It is not acceptable that an Arab country enters into an alliance with a non-Arab foreign power,'' he said.