The Craxi government's foreign policy focused on traditional Atlanticism, but it also made considerable efforts to maintain good relations with Mediterranean countries, especially Arab countries. For this reason, it was essential to maintain good relations with Arafat, the leader of the PLO, and to seek a solution to the Palestinian problem. In November 1984, Craxi and Andreotti visited Egypt, where President Mubarak was attempting to mediate on the Israeli-Palestinian issue and to improve relations between the PLO and Arab countries. Among European countries, the Egyptian president showed particular reliance on Italy. In December, they met with Arafat, urging him to express his willingness to form a Jordanian-Palestinian federal or confederal structure, but his response was ambiguous. Jordanian King Hussein and Arafat reached an agreement on the future Jordanian-Palestinian union, but the West Bank was still occupied by Israel, having been conquered following the 1967 Six-Day War, so the Jewish state's decisions could not be ignored. In February, Israeli Prime Minister Peres was received in Rome (the first time an Israeli prime minister had visited Rome), and expressed his willingness to discuss the situation with the Jordanians and Palestinians, but not with the PLO, which Tel Aviv considered a terrorist organisation. Beyond this, relations between Jordan and the PLO progressively worsened, undermining the efforts of the Craxi government.

Furthermore, the Italian government, with the cooperation of the Egyptian government and Arafat, also managed to negotiate with the hijackers (belonging to a rebel branch of the PLO) of the Achille Lauro cruise ship, who ultimately surrendered. The Egyptians had agreed to participate in the compromise that would have put an end to the hijacking on the condition that the four terrorists, considered responsible, be transported to Tunisia (the headquarters of the PLO) aboard an Egyptian plane, accompanied by Abu Abbas, a political figure close to Arafat and the mediator of the agreement. This act served as a guarantee that they would be subjected, under Arafat's authority, to due process for carrying out an attack that compromised the negotiations, then underway, for a solution to the Palestinian question. As a result, the agreements were respected, albeit at the cost of a diplomatic crisis between Rome and Washington, which nearly erupted into a firefight between Italian and American soldiers at the Sigonella military base.