A C152 INSTRUCTOR AND STUDENT; WHILE ENTERING THE TFC PATTERN AT PAE; CAME WITHIN CLOSE PROX TO ANOTHER ACFT ON A MISSED APCH.

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CHAIN OF EVENTS: TWR REQUESTED THAT WE (THE C152) CROSS OVER THE ARPT AT MIDFIELD TO ENTER THE TFC PATTERN FOR RWY 34R. WE COMPLIED AND WERE AT THE W END OF THE ARPT AT 1600 FT MSL WHEN TFC WAS POINTED OUT BY TWR. THIS WAS THE SENECA BEGINNING A MISSED APCH OVER THE PAE VOR. I ADVISED TFC IN SIGHT AND CONTINUED EBOUND WHILE THE SENECA CONTINUED SBOUND. THE SENECA THEN INITIATED A R TURN TOWARD OUR POS AND RPTED TO TWR THAT THEY WERE 'LOOKING FOR TFC.' WHEN THE SENECA TURNED TOWARD US; I COMMENCED AN IMMEDIATE TURN TOWARD THE L TO AVOID A POTENTIAL CONFLICT. THE SENECA CALLED 'TFC IN SIGHT' WHEN APPROX 500 FT HORIZ AND WHAT APPEARED TO BE 200 FT VERT SEPARATED FROM US. I DID MY BEST TO AVOID THE APCHING TFC. UPON LATER DISCUSSION; IT WAS DISCOVERED THAT THE INSTRUCTOR ON BOARD AND THE STUDENT WERE 'BOTH' BUSY WITH A SIMULATED ENG-OUT MISSED APCH AND FAILED TO LOCATE US UNTIL THE LAST MIN. I BELIEVE THE CONTRIBUTING FACTORS TO THIS EVENT ARE THE TWR'S POOR SEPARATION OF TFC; THE SENECA INSTRUCTOR AND PLT'S FAILURE TO MAINTAIN AN APPROPRIATE LOOKOUT FOR TFC AS WELL AS THE NONSTANDARD TRANSITION OVER THE ARPT THAT WAS ASSIGNED TO THE CESSNA 152. BETTER COORD OF TFC IN CLASS D AIRSPACE BY PAE TWR; AND A MORE VIGILANT OUTLOOK BY THE INSTRUCTOR/SAFETY PLT WOULD HAVE PREVENTED THIS EVENT. AS FOR MYSELF; I HAVE LEARNED THAT EVEN AT A TWRED ARPT; INSTRUCTIONS SHOULD BE QUESTIONED AND PERHAPS EARLIER EVASIVE ACTION SHOULD BE TAKEN WHEN A CONFLICT IS REMOTELY POSSIBLE.