Israel has a problem: It doesn't know what to do with its occupied territories.

These two highly publicized pieces of land - the Gaza Strip and the West Bank - are spoils, of sorts, of the infamous 1967 Six-day War.But few, if any, on either side are enjoying the spoils.

Certainly, a spokesman for the Israeli Defense Forces with whom I spoke isn't enjoying it. On his desk were three phones - kind of symbolic of his work load, I think.

"Busy day?" I asked, after several interruptions.

"Busy life," he responded.

And I think he meant it.

I got the feeling that he wasn't particularly comfortable with his job - or the role of the IDF in the occupied areas. But he fully believed the role to be essential and was committed to fill it.

"People in uniform don't make the decisions," he explained. "But the politicians have made two decisions (that affect us).

"First, they decided not to decide the future of the (occupied) territories."Second, they decided that as long as a decision about the territories is up in the air, that the IDF is responsible for the territories."

What that means is that 1.7 million Palestinians - who are not citizens of Israel - are living under control of the Israeli army.

And that is, in many respects, a unique problem. Although wars and refugees are commonplace in history, refugees are usually resettled in the areas to which they fled.

"The only exception to that . . . is the Palestinians," said political analyst Yosef Goell, writer for the Jerusalem Post.

"This is a very humanly painful thing, but it's how the world is," he said. "By not resettling, the world is allowing the problem to fester and worsen."

Palestinians I met would probably not disagree with that; the problem is certainly festering. And though the Palestinians are the ones who are now suffering the most, both sides seem weary of the conflict.

But that doesn't mean it'll soon be resolved.

The fact is that Israel can't figure out what to do with the territories.

The majority of Israelis, Goell says, believe Israel needs the occupied territories for security, but they would be willing to return some of the land in exchange for peace.

The rest believe the land is theirs - either through an act of God or an act of war - and the Palestinians, or any Arabs for that matter, have no right to be there at all.

Officially annexing the areas - and making the 1.7 million Palestinians citizens - is out of the question. Within a decade or so, the Palestinians would outnumber the Israelis - and control the state.

"Most Israelis would probably love to get out of the territories and off the backs of the Arabs - in exchange for peace," Goell said. "But I am absolutely convinced that if we get out, there will be no peace. A Palestinian state will be used to further the Arab-Israeli conflict."

The Arabs "have been saying for 40 years that they want me (the Israelis) out. For the past two years they've been saying there is room for both of us. But I'm absolutely justified to be suspicious as hell of their supposed change of heart," Goell said.

His voice now rising, showing the fervor of his conviction, he continued.

"The only reason they might have changed is because they are hurting. They certainly haven't turned into Jew-lovers. To my regret, there is not the slightest sign that" they have changed.

And even if they have changed, the problem remains, Goell told me, because peace with Palestinians in no way guarantees peace with other Arab factions and nations.

So, as one longtime American observer told me Israel "is a society in crisis. The occupation (of the West Bank and Gaza Strip) goes against the very ideology (of democracy) upon which the state was founded."

But Israelis firmly and unequivocally believe that, as an island in the middle of an Arab sea, they must protect their security.

And yet, the dream of security remains elusive. This point was driven home to me one Saturday morning as I walked through East Jerusalem, the Arab sector of the city, and an Israeli policeman asked me where I was from.

"You ever heard of Utah?" I responded.

"Oh yeah," he said, "I'm from Portland."

Like most Israelis, he had immigrated to this Jewish nation. When I asked why he'd come, he said he'd just always wanted to do it.

"Are you armed," I asked, because, unlike most soldiers or policemen, he had no automatic rifle hanging from shoulders.

"Oh yeah," he said "we're always armed. And we wear these things (pointing to his flack jacket) so one of these guys won't stab us."

As I looked around at "these guys" - the Arabs - I thought he was being a little overzealous. But about an hour later and block away, a 35-year-old Palestinian woman stabbed an Israeli policeman.

The officer was not injured. The woman was shot in the head and killed.