The decision of President Bush and Secretary of State James A. Baker III to work for an Arab-Israeli peace process is a watershed event. Opportunity and risk go hand in hand. From now on there will be either progress or catastrophic decline.

There is no substitute for American mediation, and any U.S. retreat without results would now correspond in diplomatic terms to what would have ensued if the coalition military forces had gone home without attaining their goals.It must now be evident that time is not neutral. Prolongation of the explosive territorial and administrative status quo in the West Bank and Gaza has served nobody except the fundamentalists, the extremists, the annexationists and the "all or nothing" addicts on every side.

Even the few months of inevitable suspension during the war has aggravated all the tensions. A year ago, mainstream Palestinians were advocating coexistence and King Hussein of Jordan was the focal point of an Arab consensus. These relatively benign conditions no longer exist.

Faced with the choice between two evils, Yasser Arafat usually chooses both. He has managed to evoke an international and Arab revulsion almost as broad as that which Saddam Hussein created in the military arena. King Hussein lurched impulsively into an alliance with Saddam Hussein, whose temperament and values he has never shared.

These, together with the growth of radicalism in a part of the Israeli society, are real difficulties, but as Bush has emphasized, there will be no peace process without Jordanian and Palestinian representatives.

Moreover, Syria's capacity to attack Israel has been greatly reduced now that Damascus lacks the three conditions that made aggression so tempting in the past. It does not have Egypt attacking Israel from the south, or Iraqi armies threatening us from the east, or the Soviet Union supplying arms and a safety net in case of defeat.

Baker's efforts in 1990 foundered on the rock of Palestinian representation. This should never have been and is not now an American or an Israeli responsibility. There is no reason to repeat the bizarre spectacle of Americans and Israelis attempting to handpick "satisfactory" Palestinians.

The effective solution is to leave the appointment of Palestinian representatives in the hands of cooperative Arab governments and leading Palestinian residents.

U.S. policy will not succeed today if it restricts itself to marginal issues of procedure or avoids the central issue of "territories for peace," which has already been triumphant in the Egyptian-Israeli context and which has universal international support as well as a large following in Israel.

Nor should much time be wasted on any new chicken-and-egg controversy. What comes first? Peace with Arab governments? The Palestine problem? It is a distinction without a difference.

No Arab state that negotiates with Israel will have the domestic authority to refrain from projecting the Palestinian issue near the top of any agenda.

Although government statements in Israel, as elsewhere, are often formal and repetitive, the public discourse reveals an instinct for innovation.

A leading think-tank led by mainstream security experts has formulated the principle that "Israel's security can often be ensured by military presence without ruling over `all' the territories and populations."

In the Council of Europe and on subsequent occasions I raised the idea of a "community" on the European Community model in which Israelis, Jordanians and Palestinians would reconcile their political independence with a large measure of integration and mutual accessibility.

The careful exploration of new principles could carry our region out of deadlock and enable it to move with the spirit and impulse of the modern age.

(Abba Eban was Israel's foreign minister from 1966 to 1974.)