Then there’s the worst-case scenario: Rabin proves to be nearly as intransigent as the prime minister he defeated last week, Yitzhak Shamir. The Arabs refuse to compromise with him and manage to miss another opportunity for peace. The negotiations bog down again in bitter stalemate.

Rabin’s surprisingly strong victory over Shamir ended 15 years of rule by the hard-line Likud bloc and made the optimistic scenario seem the more plausible, though the timetable could easily slip. The new prime minister is no dove; on some issues, he is as unyielding as Shamir (chart). But he is pragmatic, and the Arabs are eager to negotiate with him. “Rabin has said he would trade territory for peace and security. That changes everything,” says an Arab diplomat. “We agree what it is we’re negotiating over. We agree what form the negotiations will take. Now it’s time to haggle over the substance of the deal.”

By the standards of Israel’s splintered political system, Rabin has an unusually strong mandate. His center-left Labor Party increased its strength in the Knesset from 39 seats to 44, while Likud dropped from 40 to 32 (following story). Rabin said last week he would form a governing coalition–he needs at least 61 seats–with support from both the left and the right. Once that is arranged, perhaps as early as next week, he will schedule a trip to the United States for some fence-mending with Israel’s most important patron.

“It does not follow that he and President Bush will be exactly on the same wave-length,” says Theodore Mann, an American Jewish leader who favors trading land for peace. Washington has said, for example, that Arab East Jerusalem is subject to negotiation; Rabin disagrees. Fortunately, negotiators won’t get to that issue for years. Rabin has another advantage: he isn’t Shamir. Strongly opposed to Shamir’s settlement policy, Bush came to believe that the Israeli prime minister was lying to him about the scope and pace of settlements, and the use of U.S. funds to support them. The administration quietly exults over Rabin’s victory. “Now you will have an Israeli partner that won’t have to be dragged kicking and protesting at every turn in the peace process,” says a senior U.S. official. If Rabin freezes most settlements as he has promised, U.S. officials expect a quick accommodation on some sort of loan guarantees, though it isn’t clear whether Israel will get the full $10 billion it originally requested to help absorb Soviet Jews.

Rabin will go most of the way toward meeting Washington’s longstanding demand for a freeze on Jewish settlements. He opposes the building of “political” settlements– those in or near Arab cities–while supporting “security” settlements, defensive bastions in places like the Jordan Valley and the Golan Heights. The Arabs call that a distinction without a real difference. “You cannot say there is legal theft and illegal theft,” contends Hanan Ashrawi, the spokeswoman for the Palestinian delegation to the peace talks. “We cannot accept any type of settlement … This is also official American policy.”

In practice, the two positions may not be terribly far apart. Most new settlements appear to fall in the “political” category. Without declaring a complete freeze, Rabin can dry up nearly all settlement construction by withdrawing subsidies and other government support. Last week he promised: “There will be a halt of government money to political settlements that are not in the Jordan Valley and Golan Heights. “Some Palestinians think the “political” distinction is merely a semantic game that Rabin plays to soothe Israeli hard-liners. And many zealous Jewish settlers, astonished and dismayed at his victory, already fear that the Palestinians will end up controlling most of the territories.

When more blood was shed there last week–two Israeli merchants were knifed to death in the Gaza Strip, while an Israeli soldier and three Palestinian gunmen died in a West Bank shoot-out–Rabin warned with characteristic severity that he would “use an iron hand” against troublemakers. Then, sounding almost like a liberal, he said peace in the territories required a quick transition to Palestinian autonomy. And he said he would try to attract foreign investment to give Palestinians more jobs.

In an interview last week, Shamir was quoted as saying he would have dragged out the autonomy talks until Israel saturated the territories with Jewish settlers. “I would have conducted negotiations on autonomy for 10 years,” he said, according to the independent newspaper Maariv. (His spokesman said he had been misquoted.) Rabin intends to get on with it. “The difference between Likud and Labor is that for the Likud, autonomy was a cover for [Israeli] annexation,” says Yaron Ezrachi, a political scientist at Hebrew University. “Labor wants to test a limited self-government for Palestinians and show there is a future for peaceful coexistence.” The talks could founder on any of a host of unresolved issues. The Arabs say they have already made concessions; in 1988, for example, the PLO acknowledged Israel’s right to exist. Many Israelis think that isn’t enough.

So far, potential Arab spoilers are holding their fire. Syria’s President Hafez Assad, who is famous for sabotaging peace initiatives, wants to regain all of the Golan Heights. But Syrian officials say they are willing to start trading proposals with Israel over something less. Rabin also is ready. “Even in the context of peace, we will not go down from the Golan Heights,” he said. “That doesn’t mean we have to stick to every centimeter or every hundred yards.”

Yasir Arafat seems to agree with Rabin that a quick deal on autonomy “We shall meet [the Israelis] in Rome no later than July 21, working nonstop,” said one of his top aides, Nabil Shaath. “We are going to race to the target date of Nov. 1 to achieve Palestinian self-rule.” Rabin still refuses to negotiate with the PLO “as an organization.” But he does not seem to object when Palestinian delegates to the peace talks consult with Arafat. “Whoever they talk to is not our business,” he said.

Bush’s intervention in Israeli politics seems to have worked. By refusing to give Shamir the loan guarantees, he forced Israelis to choose between continuing an aggressive settlement policy and receiving the economic assistance. With Labor back in power, the Arabs are beginning to feel some heat. “We will be under pressure to make concessions because Labor will be perceived as flexible,” says Ashrawi. “Likud was easy to resist. Now it will be more difficult.” The Palestinians apparently think they have to act quickly; if Bush loses the presidential election, Bill Clinton or Ross Perot may be less sympathetic to their side. But even with Bush in office, Washington will repair its relationship with Israel. The Arabs may have to demonstrate that they are not the obstacles to peace.

Willing to trade land for peace.

Says he will press for Palestinian autonomy within nine months.

Would suspend most Jewish settlement in the occupied territories. ..CN.-What’s Not

Not willing to return to the 1967 borders. Wants to keep some land for Israel.

Opposes a Palestinian state.

Wants to retain Israeli sovereignty over East Jerusalem.