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Prime Minister Ariel Sharon's circle of advisers has been expressing smug satisfaction at the recent turn of events. The Sharon camp thinks Palestinian leader Yasser Arafat has been pushed into a corner and sees this as a major diplomatic triumph. The aides also trumpet more victories, including a veto the U.S. slapped on yesterday's UN Security Council resolution to send international peacekeepers to the region.

Yet Sharon and his advisers would be wise to put a lid on their brazen displays of arrogance. (Yedioth Aharonoth furnished another example of the current mood - describing the events of the past week as the meticulous implementation of a "secret plan" which Sharon devised even before becoming prime minister). They would be wise to can it because Israel under Sharon is in for some very difficult and trying days ahead. Last week's Israel-friendly swerve in the conflict with the Palestinians is nothing more than a temporary diversion. The dispute has not been resolved, its basic problems remain intact, it's not going away.

Even with Arafat subjected to virtual house arrest in Ramallah, humiliated in front of his own people, Israel still must provide some answer and outlet for the nationalist aspirations of the Palestinian people. Even after Arafat's choppers have been bombed and destroyed, Israel's leadership must address the global opposition (and that includes American resistance) to the continued conquest in the territories. Even when it seems the IDF has the upper hand (an impression that could regrettably vanish with the next terrorist attack), the state must continue to ask if it is ready to endure the moral corruption of imposing rule on an unwilling people.

Sharon has concentrated his energies this year in fighting Palestinian terror. The results of this effort do not appear to be at all successful - terrorist attacks continued and worsened, and the number of casualties suffered by Israel rose alarmingly. Nor did Sharon contain or erase the negative effects generated by the security crisis in other spheres.

Since last week's attack at Emmanuel, government spokesmen have claimed that the Cabinet's retaliation will bring about the long awaited change in Israel's campaign against terror. But this is waiting for proof. In any event, new counter-terror policies does not exempt the Prime Minister from an obligation to address the continuing, fundamental causes that generate both the Israeli-Palestinian conflict and Israel's situation.

Up to this point, Sharon has not come across as a leader who has devised a plan that is sufficiently dynamic to alter the destructive character of Israeli-Palestinian relations. On the contrary, he appears to be tackling the situation by applying stop-gap, tactical measures, using expedient means.

The truth is that there can be no remedy to the malaise which now grips both peoples (each with its own peculiar set of woes) unless Israel renounces as folly the ambition to gain control and annex the lands of the West Bank and Gaza Strip. This delusion has in the past 30 months seemed to gain reinforcement, thanks to Arafat's behavior. The Palestinian Authority leader rejected Ehud Barak's proposal for a final settlement, and then led his people to the brink of the abyss during the months the Sharon government has been in power.

Yet Arafat's own blunders cannot alter the basic facts - Israel cannot in the long term rule millions of Palestinians. Practical, moral and international-diplomatic realities make it certain that it cannot. Sharon must formulate a plan to resolve the crisis - it must be a substantive, practical program that has a possibility of being accepted and of ending the Israeli-Palestinian quagmire.

Shimon Peres has been quoted as saying that Sharon thinks such a diplomatic initiative, and all the "painful costs" it would entail, will have to wait until after the next national elections. Whether or not these are Sharon's intentions, it is certain that the Israeli-Palestinian pressure cooker cannot withstand escalating tensions for any length of time. It must be cooled-off via the application of immediate new policies.

If such measures aren't taken, it could turn out that not only will the imprisonment of Arafat in his Ramallah residence, the searches in Beit Hanoun, and the closures on Jenin and Nablus all fail to yield the expected fruits. They might instead move the state some steps back, further and further away from its essential objective - putting an end to the dispute.