Egypt severs "all relations" with Jordan because they allege that King Hussein's plan for a federation of Jordanians and Palestinians would only serve to legitimize the presence of the state of Israel. Under Hussein's plan, the Palestinians would have an autonomous state in the West Bank with their capital in Jerusalem.
Libya calls for King Hussein to be overthrown and Israel does not respond. According to Egypt's President Sadat:
"Egypt will not allow anyone to liquidate the rights of the Palestinian people."
As a consequence of this and other pressure, such a federation never materializes and the Palestinians remain perpetual refugees for decades.