COLUMN ONE : Arab Bazaars Mix Politics and Profits : Just as U.S. policy-makers watch Wall Street, so Arab leaders check the souk. For amid the treasure-trove of gold, rugs and trinkets may be found the region’s soul.

The old man in the red fez, a fresh rosebud and the ribbon of the French Legion of Honor pinned to his lapel, leaned across his desk and spoke slowly and emphatically about a dark and dramatic chapter in Syrian history.

“There was a movement in the country, in Aleppo and Hama, but it seemed to have no general aim,” he said crisply, despite his 87 years, analyzing the events of 1980. “Was it to change the government? If that’s true, where were the people to take over?”

In the two northern cities, the souks, the big markets that form the heart and mind of an Arab business community, had been forced to shut down by government opponents. Resistance to the regime of President Hafez Assad was mounting, led by the powerful and secretive Muslim Brotherhood.

“Here in Damascus, there were rumors,” recalled Badr Shallah, then, as now, chairman of the Federation of Syrian Chambers of Commerce--a man who has been a power in Damascus for so long that his mailing address is simply P.O. Box 1. The shop owners were nervous. They expected there would be trouble if they stayed open. They wanted Shallah’s advice.

“I told them to go to their shops at the normal opening time, roll up the shutters halfway and wait,” the old man went on. “ ‘If there is trouble, close up. You have the right. If there’s is none, we stay in business.’ ”

There was none, and the support of the Damascus business community, the merchants of the souks, may have saved Assad’s government.

“To shut down would have brought harm to this country and this city,” Shallah insisted, recounting his role, which Assad hailed as a “nationalist stand,” in the drama that closed with grim finality two years later. The resistance forces rose up against Assad’s army at Hama and were crushed without mercy. As many as 20,000 may have been killed, and bulldozers brought down the city on top of their bodies.

U.S. policy-makers want to know how their proposals will play on Wall Street; Arab leaders check the pulse of the souks. Both institutions, although widely dissimilar, are the best bets for a quick read. Politicians curry their support.

The open streets of modern Arab capitals are lined with air-conditioned, fixed-price shops in the Western style, but the stifling confines of the souks touch the soul of the Middle East, the crossroads between Europe and Asia. The merchants sit in the doorways of their shops, trading bits of news with their morning regulars. In upstairs storerooms, cartons of goods stand waiting for the chance of profit.

Import-export agents, traders and the traditional Middle East business leaders whose families have been in commerce for generations have not been budged by the growing influence of government-sheltered industrialists and Western-trained experts with advanced degrees in business administration. They deal in cash, on their reputations, and they form an economic fraternity that carries weight in high places.

“There’s a lot of money generated down in the souks,” said a Western diplomat who has been based in Damascus for two years. “They’re hole-in-the-wall shops, but the owners have magnificent homes.

“A lot of big businessmen you can identify. They have pan-Arab connections and run hotel chains, that sort of thing. But they’re no bigger than men like Shallah,” whose family grain business, staffed with sons and nephews, operates from unpretentious headquarters on a downtown street, next to a radio repair shop.

In Syria, the private sector controls 25% of the economy--the healthy part. Industry, as in most big Middle Eastern countries, is state-owned and inefficient.

Shallah said no figures are kept on the percentage of the private economy handled through the 8,000 dues-paying companies and individuals of his federation, nor on what percentage deals exclusively through the souks. But the federation is the main voice of the private business owner.

When the commercial community or individual merchants want to complain to Assad, Shallah and his aides carry the message.

“And 90% of the petitions are granted,” the aged business leader said. “After all, I have long experience with the chamber”--he joined the board in 1946--”and I am older than the president.”

“Souk” is a transliteration of the Arabic word for “market.” It is less familiar in the Western world than the Persian equivalent, bazaar, or the general North African term for a city’s old quarter, casbah. But by any name, these traditional marketplaces of the Middle East whirl with activity, gossip and sometimes intrigue.

For tourists they are the place: the smell of spices, the glitter of gold and brass, folds of Oriental fabrics and a brush with ethnicity and history not provided by the antiseptic shops of uptown hotels.

Each has a special character. For example:

The coffee shops and dauntless touts of Cairo’s Khan al Khalili, whose peddlers push T-shirts bearing the words that travelers hear but don’t believe: “No Problem.”

Al Hamidieh’s vaulted iron roof here in Damascus, so pitted with rusted holes that it twinkles with starlight at midday.

Istanbul’s great covered bazaar, the Kapali Carsi, reputed to enclose more than 7,000 shops, ateliers, stalls and storehouses in a labyrinthine layout that tests visitors’ confidence that they will ever emerge.

David Street and the Arab Quarter in the Old City of Jerusalem, where shoppers risk injury if they ignore the shouted warnings of porters hurtling down the narrow lanes with wheeled carts of bouncing goods.

The characterless character of Baghdad’s new souk, President Saddam Hussein’s monument to secular efficiency in Iraq: glass skylights, cobble-less passageways, spotless to a fault.

Historically, the market was one of the twin axes of the Muslim town, the other being the main mosque, where townspeople gathered for Friday prayers. In a sense, the market served the faithful, being laid out in a ranked pattern that placed sellers of books, paper and other items for the learned nearest the holy place and more ordinary goods farther from its walls.

In Damascus today, the souks adjoin the great 7th-Century Umayyad Mosque. One souk, the Madhat Bacha, whose merchants sell inexpensive fabrics to rural shoppers, stands atop the old Roman Via Recta, St. Paul’s “Street Called Straight.”

Cairo’s Khan al Khalili stands in front of the 10th-Century Al Azhar Mosque, a renowned seat of Islamic learning. The combination of mosque and merchant--the two institutions closest to the people--remains intact.

Big cities have a variety of traditional markets, delineated by trade: a gold souk, a carpet souk, a women’s clothing souk with a lingerie “sub-souk.” Many are roofed, or at least swathed in shadow by the narrowness of the lanes. Most were built in the past few centuries, when the Ottoman Turks ruled in the Middle East, and the columns and ceiling vaults are often sculpted with Islamic designs.

Some souks, like the Khan al Khalili, perhaps the best known to Westerners, are devoted to the tourist trade. Coppersmiths hammer out bowls and trays in the lanes outside their shops. Jewelers--credit cards accepted--turn out trinkets in gold and silver, including the popular cartouche bearing the tourist’s name in Pharaonic hieroglyphics. Somewhere in the bowels of the souk is Cairo’s most popular caftan couturier .

The reputations of many markets are based on their specialties. In Dubai, computers, stereos and other imported electronic gear are the No. 1 tickets. For fabrics, it’s Damascus. Although the silks of China have been replaced by the polyesters of South Korea in the markets here and in other Arab capitals, the exotic damask cloth of Syria continues a tradition.

All the souks, locals and diplomats say, are patrolled by plainclothes police officers on the lookout for political intelligence, contraband and illegal money-changers--or a payoff for ignoring such activities.

The farther from tourist influence, the more prosaic the souk. In Tehran, the main bazaar resembles a giant, rumpled K-Mart. It is Iran’s grocer, hardware store, clothing merchant and emporium of kitchen appliances. Almost as an afterthought, it seems to a Western visitor, shops and stalls offer the carpets, jewelry and handicrafts that bedazzle tourists elsewhere.

But there is nothing mundane about the influence of Tehran’s merchants, the bazaari . In the late 1970s, when the reign of Shah Mohammed Reza Pahlavi hung in the balance, the bazaari were courted by both the monarchy and the fundamentalist forces of the Ayatollah Ruhollah Khomeini. They made their decision, as souk merchants anywhere in the Middle East would have, on pragmatic economic grounds. A decade later, it is not clear whether they made the right choice.

The bazaari had prospered under the shah and the economic boom that accompanied his last decade in power. But they also had grievances, including a seeming demotion to second-class business owners under the Western-oriented industrial elite that flourished in those years.

Furthermore, the historical relationship between the souk and the mosque was still strong in Iran, and when the mullahs preached revolution, the bazaari listened. They shut down their shops during the pivotal anti-shah demonstrations of 1978, loosening the clay under his feet.

Shaul Bakhash, an Iranian journalist and author who now lives in the United States, noted in his book “The Reign of the Ayatollahs”:

” . . . The bazaar merchants were acting out of mixed motives. They resented their loss of status, competition from domestic industries and what they perceived as excessive concentration of economic power in the hands of a few. . . . They could not conceive that in the eyes of the poor, they too could appear as the privileged material beneficiaries of the shah’s economic policies. . . . They hardly foresaw that private commerce, as well as industry, would be threatened by the revolutionary tide.”

Now, the ayatollahs’ regime has been shaken by economic hard times. Iranians are panicked by inflation. It is the No. 1 topic in the bazaar, where rumor and politics share space with kettles and rugs.