I couldn't find a reliable source for this quote. However, as I was looking, I did find another where Arafat freely admitted to lying.
It is quoted in a 1998 biography of Arafat by Said Aburish, "Arafat : From Defender to Dictator."
In Tunisia in 1987, [Arafat] both shocked and amused an Iraqi academic who politely suggested that many Arab leaders accused him, Arafat, of lying. The academic, with no axe to grind, was suggesting a change of tactics. Staring at the Iraqi with incredulous, extra-bulging eyes he said, 'Why not? For Palestine, I'd lie all the time.' Momentarily, his guest was at a loss for words. Then he burst out laughing and Arafat joined him with a broad smile which, according to the Iraqi, lightened his face and made him look like a little boy.
In Arabic, I saw the quote slightly differently: "Why shouldn't I lie? For the sake of Palestine, I am willing to lie all the time."
Aburish also described how he himself was in potential danger by his decision to be honest about Arafat in this biography (which included interviews with Arafat himself) rather than be a patriotic Palestinian who accepts his lies:
For example, despite evidence to the contrary, Arafat still insists that he was born in Jerusalem. Accepting his version of the story, to him the duty of all loyal Palestinians, would have cancelled my independence and vitiated my purpose. Rejecting his account of history, either openly or after feigning the opposite, would - according to his logic - have represented a betrayal worthy of punishment. It would have made writing this biography far more dangerous.
This goes beyond lies. This means that Palestinians are expected not only to accept the lies of their leaders, but they will be punished if they tell the truth instead.
This cannot be overstated. We have seen numerous times where Palestinians reflexively lie to adhere to The Narrative of unmitigated Israeli evil and suffering exclusively at the hands of the Jews, rather than admit - for example - that a child was killed by a terror group rocket. And journalists also follow the narrative, careful not to say anything to upset the authorities, whether it is Hamas or the Palestinian Authority, unless they are in a safe territory.
This entire society based on lies was built, in large measure, by Yasir Arafat.
(h/t Ibn Boutros)
