AMERICA'S Iraqi experience since the end of its brilliant military campaign has been an object lesson in what not to do. However, it is not too late to reverse the downward spiral and to implement in clarity and conviction what can and should be done to bring peace and stability to the country and the region.

It is a self-defeating urban myth that Americans have lost the respect and support of Iraqis. The overwhelming majority of Iraqi leaders and men in the street are grateful and hopeful that America will stay the course by providing security and guidance, until Iraqi forces and governmental structures are in place.

There are three constituencies the coalition will never win over: Iraqi Ba'athi and assorted Muslim fanatics; Al-Qaeda and other foreign inspired terrorist groups; and neighboring nations' governments, including most significantly Sandi Arabia, Egypt, Syria and Iran. The Ba'athi diehards despair of the loss of their perks and power under Saddam Hussein, and the firebrands are would-be tyrants supported by the mullahcracy in Tehran. The foreign terror organizations know that a stable Iraq will give hope and opportunity for peaceful change to their popular support base in the region. For the same reasons autocratic, despotic regimes fear for their crowns and lifetime presidencies.

A critical step for improving relations with Iraq's Shi'a is for the United States to open direct discussions between Grand Ayatollah Ali-Muhammad Sistani and a senior U.S. representative. Having made the egregious mistake of treating Sistani like a 19th-century Japanese emperor, speaking only via his emissaries, the arrival in Iraq of Ambassador John Negroponte with letters from President Bush can create the basis for mutually face-saving and profitable talks with the country's single most influential Shi'a leader. Undeniably important, Sistani is primus inter pares of Iraq's Shi'a clergy. The perception of further American kowtowing can only result in jealousy among his colleagues.

Another doubly important way to improve U.S.-Iraq relations is for the United States to cease discussions with Iran's leadership, whom Sistani and many other Shi'a clergy in Iraq despise. President Bush correctly identified Iran as a charter member of the Axis of Evil 18 months ago, and the reigning mullahs wish America no luck whatever. Tehran provides inspiration and support for the bellicose rebel strongman Moqtada Sadr. Talks between Washington and Tehran do not just negatively impact the U.S. course in Iraq, they severely undercut the surging democratic opposition in Iran.

Open and effective contact with Iraq's major leaders must be maintained to provide counsel and support as they develop the country's new constitution and conduct elections. Simultaneously, Washington must continue to expand communications with the mass of Iraqi citizens, to offset the flood of negative propaganda from those who wish nothing good for a free Iraq or the United States.

Governance

SOVEREIGNTY appears to be devolving to prudent leaders on June 30, individuals willing to guide Iraq through the writing of a constitution and the holding of fair and open elections. Guidance and counsel must be provided to these patriots in establishing a constitution that will not only appeal to Iraqis but also endure. Inter-communal problems and rivalries are not so much at the street level as among the respective leaderships, who have frequently inflamed their rank-and-file over competing political positions. The authoritarian tradition of all Arab societies extends to Iraq, requiring resolution and clear codification in law. Fortunately, at the leadership level, good judgment increasingly seems to prevail.

A cantonal system similar to the Swiss model should be commended as a viable option as the Iraqi leadership explores democratic and free market governmental models. In our talks with Iraqi leaders of the various communities, it appears eminently possible to maintain an Iraqi national fabric while allowing for semiautonomous governance in different sectors of the country. Such a formula has peacefully embraced very different communities in one nation, the very challenge facing Iraq, for 800 years in Switzerland.

A system of five cantonal districts would be established. Three would respectively be Kurd, Shi'a and Sunni dominated, based in the northern, central and southern areas of the country. Two other cantons would have special administrative status: the one, based in Baghdad (a melting pot of Shi'a, Kurds, Sunnis, Turkmen and Christians, among others), would be recognized by all Iraqis as the country's capital "special administrative canton;" the other, embracing oil-rich Kirkuk plus Diali-Khanaqin, would also have special status owing to its equally diverse ethnicity.

Post-Transition Security

THE SLIGHTEST question about America's willingness to stay the course creates waves of mistrust and insecurity among all Iraqis, causing many to look the other way regarding guerrilla and terrorist activities. The reason is simple: fear of retaliation when the Americans leave. The solution is to engage in unstinting, proactive applications of force wherever and whenever required, always underscoring our resolve to remain at the side of peaceful Iraqis while the country develops into a stable, free market democracy. No single action has undercut Iraqi confidence more than U.S. dithering about cleaning out the guerrillas and terrorists in Fallujah.

Had the Marines moved in and taken out the terrorist gangs in the initial hours of what proved to be a month-long standoff, Iraqis would have been assured of our fidelity to paving the way to real peace. Moreover, the Americans would have killed or captured an estimated 1,200 to 2,000 armed enemy, dealing a crippling blow to the opposition.

Viable, professional military and police forces must be established. To dispel concerns of American dominance, these critical duties can be undertaken by Great Britain, Australia and Jordan for the military, and by Britain, Germany and Oman for the police. Dedicated fulfillment will vitiate the horrendous mistakes made a year ago, when we simultaneously disbanded Iraq's military and police, and stood by while thousands of convicts who were released in Saddam's last days who, along with other Iraqis, later brazenly looted governmental offices and public utilities.

The maintenance of American military men and equipment must be agreed upon. Short term, the vast majority of Iraqis want American forces to remain until sufficient indigenous troops and police are recruited and trained. Longer term, it is critical to regional security and the international system that the United States retain manned bases and supply depots, well out of the Iraqi mainstream but nevertheless present.

Petroleum

IRAQ'S VAST petroleum wealth is an asset of inestimable potential, and must be developed to the benefit of all the country's citizens. There can be no question about oil in the north being solely for the benefit of Kurds, or oil in the south for the Shi'a: petroleum is an asset which should benefit Iraqis equally.

The nation's enormous oil patch clearly requires professional local oversight. Local management, reporting to a Board of Directors (for instance, one-half of whom could be designated by the national parliament and the other half by shareholders) would see to the effective and honest operation of the industry, utilizing international companies to prospect and develop the oilfields and market the production.

Actual ownership should be Iraqi, adopting a modified Norwegian model that provides direct participation in the profits of its oil industry to those to whom the resources belong--the citizenry. The keys to a successful citizen-owned, locally managed and internationally developed petroleum sector are threefold. An equal number of shares would be distributed to every citizen age 18 or older; shares would be held by the original recipient for a minimum of five years, except in the event of death, when they would be deeded to the next of kin; and shares could only be held by Iraqi citizens.

A citizen-owned oil industry would send a resounding message to Dan, Kuwait, Saudi Arabia and every other oil producing state in the region that petroleum is a resource of the people of each country. In so doing, state-owned companies would no longer have the option, as currently, to creak with inefficiency, reek of corruption.

The above alternative policies and programs would have the great benefit of being broadly accepted by all Iraqis. Besides providing security, they would avoid much of the predictable dispute that the coalition's current centralized approach for government and the petroleum sector have produced. Indeed, they would be as refreshing to good governance and nascent capitalism as the widely popular 15 percent flat tax for individuals and corporations already in place. Their implementation would lead to:

* The development of trusted leadership cadres in the three major population groups;

* A reduction in potentially disastrous inter-communal rivalries;

* No need to deal with the foul regime in Tehran, simultaneously encouraging the already strong Iranian opposition;

* Iraq as a genuine beacon of free market democracy in the Middle East.

This is, in short, decidedly not the time to cut and run. With renewed, enlightened commitment in Iraq plus the recognition in Washington's corridors of power that progress will evolve in different ways at different times in different countries, we come to the conclusion that the way forward is indeed promising.

John R. Thomson has lived and worked in the Middle East for more than three decades, having been based in Beirut, Cairo and Riyadh as a businessman, diplomat and journalist. He covered the Six Day War and its aftermath as well as the Gulf War. Hussain Hindawi has recently returned to his native Iraq after 32 years in exile. He established the Arabic Service of UPI and served as its editor-in-chief for eight years.