The discouragement of the Palestinian delegation arose from having had an almost totally different interpretation than the Israelis of the Madrid Agreement concerning what should be on the table in this first interim stage of the talks and what should come later. Because the Palestinian delegation could not get such items as the specific territory at issue on the agenda, they were already talking about pulling out of the negotiations.

Subsequently, in Israel, I found that almost all the Palestinians in the West Bank I spoke with were similarly discouraged with Rabin. On the other hand, I found almost total consensus among every Israeli with whom I spoke, official and unofficial, from Meretz (the leftwing grouping of the Rabin coalition) all the way over to the center right, that the Israeli prime minister was indeed serious in his bid for peace.

Then I discovered another reason, about which virtually nothing has been reported, that made it impossible for me to avoid the conclusion that Rabin had a strong need to be "serious" about settling with the Palestinians. I had run into groups of American investment teams trying to identify investment possibilities within Israel. This was fabulous news, because over the years Israel had been unable to attract significant foreign capital from the U.S. or Western Europe, since it was considered politically unstable.

That changed after the Madrid Peace Conference a year ago, when the investment flow began to surge. Simply put, the prospect of peace meant the promise of political stability for Israel. This growing investor confidence has been a major windfall for Rabin's management of the Israeli economy. For the peace talks to collapse now would be a major setback for his government. The return to instability would undoubtedly cut that capital flow. I thus concluded that to keep the negotiations on track, Rabin had to be "serious."

As a demonstration of his sincerity, a gesture from Rabin to beef up Palestinian morale in the territories- more in the Israeli interest than the Palestinianshad already been overdue by December when he acted to expel the Hamas activists. Such a gesture would have rewarded the moderates among the Palestinians and helped marginalize the Hamas fundamentalists and rejectionists trying to grab leadership. Now the moderates, who could not deliver, look weak. The killing of the Israeli soldiers was meant to undermine those Palestinians talking peace with the "occupier."

At the U.S. end, especially during the interregnum of power, President Bush should have reinstituted the 1988 dialogue with the Palestinians, broken when Abu Abbas came up shooting on the Tel Aviv beach in the summer of 19go. Had Bush renewed those talks, it would have taken the domestic heat from the new Clinton team in making a new initiative, just as Reagan and Schultz had done for the incoming Bush administration during the 1988 interregnum.

Bill Clinton, himself, has been something of a mystery vis-á-vis the Middle East. Last June he surprisingly and discouragingly made explicit his view that there would be no Palestinian state and that Jerusalem would remain Israel's. Such firm positions offered at this early stage on these two most contentious issues could render negotiations stillborn under his administration. Is that what he really wants?

Now that the Israelis under Rabin's leadership and an increasing section of American Jewry - even some of the organizational leadership-have finally come around to wanting movement on the Palestinian problem, it would be anachronistic and a tragic irony if the Clinton administration were to return to the Shamir policies already rejected by the Israeli's themselves. The question for the Palestinians is becoming not whether Rabin is "serious" about the negotiations but whether Clinton is. And they are discouraged.

As a result of the mid-December deportations and the lost momentum of the peace talks, tensions no doubt will soar while the investment flow shrinks. The security threat from the Hamas terrorists combined with the economic threat of lost foreign capital makes this a dire moment for Israel's future. Not until there is peace with Israel can arms sales be stopped and another Saddam-like demagogue be deterred from playing off Israel against the Arab world.

Renewal of talks with the PLO by the U.S. would still help. Rabin should now call not only for direct Israeli/ PLO talks, but even consider recognizing the PLO. As the U.S. has excruciatingly learned, all communists were not monolithically evil. So also could Rabin teach his people that not all Palestinians are terrorists.