ISRAEL At 40: the Dream Confronts Palestinian Fury

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Israelis ended with nearly three times their original territory. They annexed East Jerusalem to Israel and pronounced it the nation's capital. Israeli leaders thought a rapid negotiation would give their state some security in return for most of the captured land going back to the Arabs. But there came only more wars -- the War of Attrition in 1969-70, the October War of 1973. Only in 1977 did Egyptian President Anwar Sadat break the stalemate by traveling to Jerusalem to set a partial peace in motion. In 1979 Israel agreed to return all of the Sinai to Egypt in return for the formal peace treaty negotiated with Israeli Prime Minister Menachem Begin and President Jimmy Carter at Camp David. That event was one of Israel's finer moments, but its full promise was never realized. Sadat paid for the deal with his life when he was assassinated in 1981, and Egypt was exiled from the Arab community for eight years. Begin, whose conservative Likud bloc ascended to power in 1977, was praised for his ! statesmanship, but he apparently saw the return of the Sinai as a final act, not as a prelude to negotiating the return of the West Bank and the Gaza Strip. Then in 1982 Israel invaded Lebanon in an attempt to wipe out the Palestine Liberation Organization once and for all. For the first time, Israel launched a war for essentially political reasons, not because its immediate survival was at stake but as part of a larger design to alter the distributions of power in the region. The business of peacemaking fell into disrepair. Ultimately, last December, the Israelis' repressive hand in the occupied territories stirred the Palestinians to their current fury of rebellion. Last week what the Palestinians call the intifadeh (uprising) proceeded, and the peace process did not. Prime Minister Yitzhak Shamir returned home from a nine-day visit to the U.S., in which he had resisted the American proposal for an international peace conference. Shamir's supporters, including several thousand Jewish settlers from the territories who waved machine guns and danced the hora, gave him a hero's welcome in Jerusalem. They chanted, ''Blessed be he who comes back without a conference.'' At least 100 Palestinians had died in the uprising by last week, but for the first time, an Israeli soldier was killed, shot in cold blood as he stood guard duty in Bethlehem. The army issued new shoot-to-kill orders against any Palestinian throwing Molotov cocktails. It also said in effect that Jewish settlers in the territories would be permitted to shoot rioters attacking them with gasoline bombs. There was prescience in Chaim Weizmann's declaration in 1949: ''I am certain that the world will judge the Jewish state by what it will do with the Arabs.'' The world's judgment this year is sometimes harsh, at least on the question of what the Israelis have done in regard to the Arabs in the territories. And the conflict there, considered in light of Israel's history in the past decade -- the invasion of Lebanon, the de facto annexation of the territories through settlement by Israelis, many of whom are religious fundamentalists, the Pollard affair in which the Israeli government assigned an American Jew to spy on the U.S., the Israeli involvement in the Iran-contra enterprise -- has raised the question of whether Israel has lost its way. Israel's accomplishments have the prestige of the miraculous. To many Jews, Israel is a fact of primal identity -- primal precisely because it lived so