COLUMN RIGHT : Land Not for Peace but for Civil Justice : All Israeli residents, Jews and Arabs, should be equal before the law.

The military success of the Iraq War may have encouraged the idea that the Bush Administration has taken the measure of the Middle East. After Secretary of State James A. Baker III visited Tel Aviv, there were reports of moves to resolve the Arab-Israeli conflict: concessions proposed, negotiating formulas offered. Unfortunately, the strategies and proposals conventionally (and once again) heard are unlikely to lead anywhere.

The liberal approach is summarized by the formula “land for peace.” The general idea is: If only the Israelis will surrender control of the West Bank and the Gaza Strip, then the Palestinians who live there will respond with gratitude. They, too, will have a state. “Peace” will ensue. Lurking beneath this bargain, of course, is the implicit threat of continued conflict if the bargain is not struck.

It can safely be said that this proposal is not going anywhere (as its staleness suggests). A growing number of Israelis believe that such a concession would only be the prelude to a deteriorating conflict. The memory of Palestinians cheering on Iraqi Scuds discourages other interpretations. Americans don’t grasp the short distances involved. “Land for peace” means a country bordering on Tel Aviv. It’s not going to happen.

Then there’s the conservative, or Likud, strategy, which amounts to a policy of indifference to the good opinion of mankind. New Jewish settlements are built on the West Bank--”facts on the ground,” as they are called in Israel. This is a policy of defiance, a formula for continued conflict.

There is a third way, however. The Israeli government should allow much more scope for the free market. All residents, Jews and Arabs, should be equal before the law and enjoy secure property rights. Negotiation and compromise is something that is best done between individuals, not between representatives of states (or entities such as the PLO). Without such economic rights, on the other hand, life is inevitably reduced to conflict.

The little-recognized problem in Israel is that the level of state control over the economy has greatly increased over the years. More than 90% of the land is controlled by the government and the economy is increasingly socialist. With its vast discretionary power, the bureaucracy routinely makes life difficult for most Jews; for the Arabs things can easily be made unbearable.

It is this civil and economic discrimination that, more than anything, gives rise to grievance and a sense of injustice. In the West Bank, under military rule, harsh economic measures have been imposed on Palestinians: curfews, razing of property; water and electricity cut off; taxes collected by force; harvests prevented from reaching markets.

As the economist Milton Friedman pointed out in 1969, after the Six-Day War the early administration of the West Bank under Moshe Dayan was non-interventionist and life was surprisingly harmonious. The military saw that laissez-faire policies “would foster the economic integration of the West Bank with Israel,” Friedman wrote, “without requiring political integration.” But in later years the level of state control in Israel increased and West Bank residents were likewise subjected to a far greater control.

The result has been a decline in Jewish-Arab relations in the land of Israel as a whole. The intifada , or Arab uprising, should be thought of as a frustrated response to this control (not a cause of it). Economic rights may not be high on the ACLU’s list of priorities, but life is impossible without them. Americans neglect the virtue of property rights because they take them for granted. The Palestinian leadership likewise seems to neglect what could be a potent issue, perhaps because the insecurity of property is a regular feature of life in almost all Middle Eastern countries--not just the West Bank.

Francisco Fernandez Ordonez, Spain’s foreign minister, in a recent meeting with Yitzhak Shamir, asked the prime minister if he would take steps to make life easier for Palestinians in the occupied territories. Shamir replied that “if the intifada were to stop, then within a week or two there would be impressive results.”

Palestinians should put this promise to the test. If their docility would be rewarded with economic rights, then this neglected economic solution to Israel’s dilemma will be easier for all to see.

It’s tempting to think that the solution to the excesses of state power wielded by one government is to establish another. But that is likely to be a formula for war. What is needed, in the Middle East as in many other parts of the world, is the restoration of autonomy to individuals, irrespective of race or religion.