The time has come for America to spell out its terms for settling the gulf crisis. At this stage, the crisis should be easing and diplomacy moving forward.

Both sides had to make certain moves before a settlement could even be contemplated. But that phase ended with the Helsinki summit; a breach between the superpowers was Saddam Hussein's last real hope. Rather than easing, however, the crisis is becoming more explosive, and war seems more and more likely.War may well be the only solution. If Saddam is truly like Hitler, he lusts for war. Even so, before going to war, we must try to offer him a way out.

Simply insisting that Iraq withdraw from Kuwait is no longer enough. Any peace plan has to deal not only with the liberation of Kuwait but with the containment of Iraq and the establishment of new security arrangements for the gulf, and perhaps the entire Middle East.

The outlook for negotiations is quite gloomy, but a peace plan might work if all five permanent members of the Security Council - Britain, France, the United States, China and the Soviet Union - put it forward. Even Saddam Hussein could not simply brush it aside.

The starting point, of course, would be the withdrawal of Iraqi troops from all of Kuwait and the insertion of a U.N. force. The Kuwaiti government would have to pledge to validate its legitimacy through elections to a parliament.

Iraq would be guaranteed the opportunity to present its economic and territorial grievances against Kuwait to the World Court, and both governments would be bound by the outcome.

With Iraq's withdrawal completed, one-half of its assets would be unfrozen, and the embargo against foodstuffs and non-lethal imports would be lifted.

This might just barely save Saddam's face, but it would still leave the region at his mercy. This threat would be dealt with, first, by a Five Power guarantee to the effect that an unprovoked attack against any of the gulf nations by any power would be an attack against the Five Powers. This guarantee would be extended to all gulf states, whether they requested it or not.

Iraq would have to agree to submit its various nuclear-related facilities to inspection as provided for by the Nonproliferation Treaty. Moreover, its rockets and missiles would have to be assembled in a designated area and subject to continuing inspection and preferably destroyed.

Any chemical-weapons production facilities would be deactivated and also made subject to inspection. Destruction of chemical weapons stocks would be desirable but may be impossible to verify.

At this point all non-Arab foreign ground troops would withdraw, but some U.S. and European air and naval units would remain. Iraq's remaining assets would be unfrozen and the embargo entirely lifted.

These arrangements should contain the threat from Iraq. Why would Iraq agree to this? It would be close to a surrender, but it ought to be preferable to war, which could only end with Iraq's destruction.

The plan's principal disadvantages are that Saddam Hussein would remain in power with a huge army and that deterring him would depend heavily on a continuing agreement among the Five Powers.

A realignment of forces in the Arab world is obviously under way. The Soviet role in the area is also changing significantly. The Five Powers should include in their plan an offer to expand their efforts to explore a regional security system.

(William G. Hyland is editor of Foreign Affairs.)