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Fateful Choices for Shimon Peres

HOW does the Israeli government intend to treat the Palestinians? In 1996 this question will be important far beyond the boundaries of ''Palestine.''

Shimon Peres's earliest actions as prime minister indicated some generosity and breadth of vision on this score. He accelerated his troops' withdrawal from Palestinian cities and spoke convincingly of the need for cooperation and reciprocity between Israelis and Palestinians.

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But then, in early January, he appeared to have sanctioned the assassination by Shin Bet, Israel's internal security agency, of a suspected Palestinian bombmaker inside ''self-ruled'' Gaza. This action signaled contempt for the concept of legal due process - as well as for all the agreements on security coordination with the Palestinians. Mr. Peres's government then compounded its error by ''closing off'' the West Bank and Gaza to Palestinian (but not Jewish) travellers. The Palestinians' travel freedom ended right in the middle of their politically crucial three-week election campaign, which sparked anguished protests from European Union observers (but little from Washington). Peres seemed to be signaling that he cared little about the integrity of the elections - or about the political fortunes of his principal Palestinian interlocutor (and election candidate), Yasser Arafat.

The Palestinian elections will probably survive the setback caused by the assassination and the closure. But the broader question of how the Peres government intends to treat the Palestinians remains. Throughout 1996, two parallel factors will throw further light on it:

* The way the two sides deal with each other on a daily basis will become more important as ''self-rule'' takes deeper root in Gaza and the tiny Palestinian enclaves of the West Bank.

* In May, the two peoples will start negotiating the thorny final-status issues - including Jerusalem, final borders, and the fate of the two-thirds of the Palestinians still not allowed to return to any part of their homeland.

1996 might, in addition, see progress in the other main unfinished strand of Arab-Israeli peacemaking: the Syrian-Israeli track. Peres has expressed a strong commitment to reach a speedy settlement with Syria. But he will soon discover (if he has not already done so) that these talks are closely linked to the Palestinians' final-status talks and cannot be a substitute for them.

Indeed, when the Palestinian final-status talks open in May, all Arab states, not just Syria, will have a strong interest in their outcome, especially on the crucial issues of Jerusalem and the status of the 4 million Palestinian refugees. (Lebanon's President Elias Hrawi recently restated his country's long-standing opposition to the integration of the 400,000 Palestinians in Lebanon.)

Syria hosts close to a million additional Palestinians. President Hafez al-Assad has good relations with the harder-line Palestinian politicians and considerable sway over all events in Lebanon. His attitude on the refugee issue will be crucial in the Israeli-Palestinian talks.

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A word of warning: Many in Israel have expressed the hope that the final-status talks with the Palestinians will produce nothing, leaving the interim ''self-rule'' arrangements to gel into place. This would be a recipe for disaster, freezing the Israeli-Palestinian relationship into a formula far less stable than white South Africa's former arrangement with the black bantustans.

As leader of the strongest power in the Middle East and beneficiary of a good lead in domestic opinion, Peres is well-placed to provide the whole region with breadth of vision and a stable peace - or the opposite. With the US continuing to pay Israel's peacemaking bills, no strings attached, the choice is solely up to him.

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