US Secretary of State Colin Powell recently observed that the Palestinians "need to understand that [terrorism] leads nowhere," and on this basis he urged them to stop their violence against Israelis.

While wholeheartedly agreeing with his policy advice, this observer dissents from his analysis that the Palestinian use of violence "leads nowhere." Actually, the violence has an ambitious strategic purpose, as Hassan Ayoub, director of the PLO's executive committee office in Nablus, explained a few months ago.

"Now, it's a finger-biting game between the Israelis and the Palestinians. The first one who says ouch is the one who loses. And nobody's going to say ouch no matter how bad it hurts."

In other words, a war of wills is under way. The Palestinian Authority, vastly inferior to Israel in the military realm, hopes to make Israel "say ouch" by deploying terroxism against its civilians. And because the PA itself cannot sponsor terror, it delegates this task to Hamas and Islamic Jihad.

"[Yasser] Arafat uses Hamas to bleed Israel, to wear it down," correctly observes Ephraim Inbar of Bar-Ilan University. If the PA succeeds in bleeding Israel enough, it will extract larger concessions from it. Terrorism, in short, is integral to the PAs negotiating.

"The Palestinian leadership uses terrorism to 'accelerate' the Oslo process," writes The Boston Globe's Jeff Jacoby, thereby rendering Israelis "so desperate and demoralized that they will make even deeper concessions, surrender even more land, and struggle even harder to make peace with their enemies."

Specifically, the PA seeks a total Israeli withdrawal from the West Bank and Gaza, control over the Temple Mount in Jerusalem, and massive numbers of Palestinians permitted to live in Israel. It wants, to be blunt, a start to the dismantling of the Jewish state.

Israel has a counterstrategy, one increasingly evident since Ariel Sharon became prime minister in early 2001. It is to show the Palestinians the futility of their dream to destroy Israel by squeezing them through the loss of mobility, a steep decline in living standards, and a collective malaise.

"Look " Israel is in effect saying, "this is getting you nowhere. Give up your dream of destruction. Make a deal with us."

Who is winning? Through the 1990s, Israeli confusion and illusion permitted the Palestinians to get the upper hand. Since Sharon came to office, however, Israelis have found their old spirit, their old unity, and their old purpose. The paralyzing divisions of the 1990s have nearly disappeared, as have the self-hating "post-Zionis" themes (which ridiculed Israeli patriotism) and the defeatism (which prompted a unilateral withdrawal from Lebanon).

The shift is no less dramatic on the Palestinian side. The suicide bombings may suggest robust determination, but they mask widespread despair and pessimism. How else can one explain the sudden offer last week of a temporary truce with Israel (then embarrassingly retracted) by the military wing of Hamas, Islamic Jihad, and two military groups connected to Arafat?

Arafat recently appointed Safi Nusseibeh, a moderate who accepts Israel's right to exist, as his representative in Jerusalem.

Palestinians fully know how much they have sacrificed over the past year - the lives of their children, their personal well being - and how little they have accomplished. Such failure makes it hard for them to sustain the political will to destroy Israel.

And should Arafat exit the political scene, that goal will become even more remote. The PA could well split in two, for it consists of two geographically separate regions (the West Bank and Gaza), each dominated by a strongman (Jibril Rajoub and Muhammad Dahlan). If these toughs emerge as rulers of their areas, as seems likely, the Palestinian national movement

will be fractured as never before and the battle against Zionism will become yet more difficult.

For these reasons, a rapid decline of Palestinian will appears finely, as has happened several times before - in 1939, 1949, 1967, 1991 - though this one could well be more severe. There is good news here: If Israelis can sustain their recent sense of common purpose and resolve, Palestinians may give up - perhaps permanently - on their goal of destroying Israel. And should that happen, an end to the century-long Palestinian-Israeli conflict could finally be in sight.

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The writer, director of the Philadelphia-based Middle East Forum, can be reached via www.Danie1Pipes. org (http://www.danielpipes.org).

Jerusalem Post, December 19th, 2001