PERSPECTIVE ON THE MIDDLE EAST : Iraq Is Not the Lesser of Two Evils : While the West persists in wishful thinking, Saddam Hussein is positioning himself to be the No. 1 Arab power.

The West is once more in danger of misreading the nature of Iraq’s president, Saddam Hussein, and his ambitions for his country. Unless there is a clear-sighted view of his intentions and an effective response to them, Western interests in the Persian Gulf will be in deep jeopardy.

The record of Western misapprehension about Hussein’s regime is extensive, going back to 1980, when Iraq invaded Iran. Ignoring a raft of evidence, Western analysts and policy-makers attributed Iraqi aggression to fear of Iran and its revolution, rather than to Iraq’s ambitions to become the dominant power in the Persian Gulf and the Arab world.

These analysts made their next serious mistake by interpreting Hussein’s downshifts in rhetoric, necessitated by war needs, as indicating deep and long-lasting ideological and institutional transformation of Iraqi politics and society. This misreading led to Western expectations about Iraqi behavior that could only be characterized as wishful thinking. For example, it was generally expected that Iraq would liberalize its political system and play a positive role in resolving the Arab-Israeli conflict. Perhaps it would even join Egypt and Jordan in an Arab coalition willing to make peace with Israel. The pay-off: total Western support for Iraq in the Persian Gulf war.

Because of this sort of analysis, the West--the United States and Europe--helped Iraq economically and militarily far beyond what was necessary to contain Iran. Simultaneously, by weakening Iran more than was necessary to keep it from dominating the Persian Gulf, the West helped to create a disequilibrium in the regional balance, which Saddam Hussein has exploited ever since.

After the cease-fire in the Iran-Iraq war, and despite the obvious shift in the regional military balance, the West persisted in viewing Iran as the greater threat and refused to force Iraq to live up to its commitments under U.N. Security Council Resolution 598, the basis for the cease-fire.

The West also continued to turn a blind eye to Iraq’s massive human-rights violations and was years late in condemning Iraq’s use of chemical weapons, the most extensive since the World War I. The Western attitude toward Iraq’s drive for nuclear capability has also been muted.

Last week, Iraq’s threat to Kuwait’s security and territorial integrity was seen by many Western analysts as mere posturing in order to boost oil prices at the OPEC meeting in Geneva. As usual, they cautioned against antagonizing Hussein.

This analysis is seriously in error. There can be no doubt that Iraq wants to become the dominant power in the Persian Gulf, which its own 30 miles of coastline does not merit. Thus, it must control the Iranian shoreline or that of Kuwait.

Saddam Hussein is a typical Arab nationalist, in the Nasser mold, who views the gulf rulers as reactionary Western surrogates and impediments to achievement of Arab nationalists’ goals. Now that he is riding high in popularity among the Arab masses, and because of Arab frustration over the Palestinian problem, he is testing to see whether he can supplant these gulf leaders or at least bring them under his control. Nor would Iraq need to launch a full-scale military invasion of Kuwait to achieve its goal. It could force Kuwait to surrender or lease strategic islands or even to unite with Iraq.

If successful, critical Iraqi influence over the West’s oil lifeline would lead Hussein to pressure the West on the Palestinian problem.

Under these circumstances, what is the West to do? It has already narrowed its options by having indulged Hussein for too long. For example, given Iraq’s current military strength, it would not be easy to mount a U.S. naval operation similar to the re-flagging and protecting of Kuwaiti tankers that was carried out at the height of the war in 1987-88.

Nevertheless, the West must act before it is too late. First, it must finally see Hussein for what he really is and stop entertaining false hopes. It must be more prudent about Iraq’s nuclear program, and it must apply economic pressure while Iraq is still financially vulnerable. Let’s hope the U.S. Senate’s voting of economic sanctions Friday marks the start of a long-term policy re-evaluation. The West, including Europe, must stop new credits and loans to Baghdad, and if that is not sufficient, an economic boycott, including Iraq’s oil, may be necessary.

The West also must try to restore some balance in the region by helping Iran’s moderates, easing Iran’s re-integration in the world community and encouraging Arab-Iranian reconciliation.

Finally, the West must do all it can to break the deadlock on the Arab-Israeli peace process and find a solution to the Palestinian problem--the single most important rallying cry for frustrated Arabs and the best tool of manipulation for their ambitious leaders.