The enormous cloud of uncertainty that has hung over the U.S. economy for the past five months began to dissipate last week when U.S. and allied forces attacked Iraq.

For better or worse, American households and businesses will soon know the outcome and can again make long-term plans accordingly. The invasion of Kuwait last August had produced a sort of paralysis of planning. Business executives in many industries said they were avoiding new long-term commitments wherever possible. Surveys showed that consumers cut back plans to buy new homes or cars or take vacations.

These effects, along with the real damage from soaring oil prices to consumers' pocketbooks and businesses' profits, battered an already weak U.S. economy and tipped it into a recession.

If the progress of the war and the reaction of the markets to that progress continue, there is a broad consensus that the economic outlook will have taken a decided turn for the better. The ifs remain big ones, but a swift end to the conflict would bring a double dividend to President Bush: It would insulate him from criticism over high casualties more likely from a longer war and the likely economic improvement would eliminate recession as a club in the hands of his political opponents.

Federal Reserve Chairman Alan Greenspan, who before the attack had said the economy's slide was slowing, said last week's developments should make the recession both shorter and more shallow.

"We are looking at lower oil prices, which were positive; lower interest rates, which are positive; and, perhaps most important, the potential removal of a significant degree of uncertainty which overhangs the world economies," Greenspan declared in a Wall Street Journal interview.

Many private analysts echoed Greenspan's comments.

Peter Canelo, an analyst at Bear Stearns & Co. in New York, said the early success seemed to be reversing market psychology that had been shaken in recent months by signs of a recession, declining confidence in Bush and frustration over the Persian Gulf situation.

"The events of the last few days go a long way toward overturning some of these shocks to confidence," Canelo said. "It doesn't dispel this dark cloud hanging over U.S. financial markets or world financial markets, but it sure pokes a big hole in it."

"If it turns out that this crisis will be swiftly resolved with a minimum loss of life, I think that goes a long way to ensuring this economic decline will be over by the second quarter," said Norman Robertson, chief economist of Mellon Bank in Pittsburgh.

Peter Radford, chief economist at National Westminster Bank in New York, added, "If in fact things turn out to be going as well as they appear, and the war is short term with no disruptions to oil supplies, the key impact will be on consumer psychology.

"I'm not saying it's going to turn the economy around, but the collapse of consumer confidence in the fall caused many people to postpone spending. If you can reverse that, then the recession may turn out to be a lot shorter than many people expected."

The Markets Speak One measure of the impact on the economy of the new stage in the Persian Gulf conflict came last week in the wake of the initial success in the fighting: The stock market scored its second-largest daily gain in history, long-term interest rates tumbled by about a quarter of a percentage point and the cost of a barrel of oil fell by more than $13, to about $19.

Such a decline, if fully reflected in prices at the pump, could knock about 30 cents off the cost of a gallon of gasoline. That would undo completely the inflation spike of last fall and leave consumers with more money to spend on other things.

Neither Greenspan nor private analysts believe success in the Persian Gulf alone is enough to cure a sick economy plagued by rising unemployment, a banking crisis, an erosion in household buying power, cuts in defense spending and an enormous overhang of empty office buildings and unsold new homes.

"If the success in the war effort is any indication of the way things will go in the future, I expect to see benefits," said A. Nicholas Filippello, chief economist of Monsanto Co. in St. Louis. "But I wouldn't say our troubles are behind us or that everything is rosy."

But rosy, in this case, is relative. The Persian Gulf crisis dragged down confidence among business leaders and consumers alike, and its resolution should help rebuild it. The availability of jobs, one factor that weighs heavily on consumer attitudes, may not improve quickly. On the other hand, the inflation picture, which also is a key determinant of consumer confidence, will soon look a lot brighter, analysts said.

Greenspan, for one, blames the dramatic collapse of confidence for plunging the economy into a recession. "It was far more than I would have expected, the rock in consumer confidence," the Fed chairman said at a Washington Post lunch last week.

"What we found was that {the Iraqi invasion of Kuwait} did really contract consumer confidence to the point where consumer durable purchases really went downhill fairly sharply," particularly for new cars, Greenspan said. "You can trace the consumer shock through ... the economy as a whole."

New-car sales and production were slashed so far that that alone would have been enough to cause the gross national product to fall at a 2 percent annual rate, after adjustment for inflation, in the fourth quarter of last year, the Fed chairman said. He estimated that real GNP fell at a rate of between 2 percent and 4 percent for the quarter, the advance results for which will be released Friday by the Commerce Department.

Furthermore, Greenspan said, fourth-quarter car and truck production was cut so far that current schedules for assemblies this quarter, as low as they are, would represent a gain from last quarter's levels. In other words, the auto industry could be a small plus for the economy this quarter rather than an enormous negative.

For that and other reasons, the Fed chairman, even before the initial apparent success in the Persian Gulf fighting, believed there were no grounds for the extreme pessimism being shown by some forecasters who were predicting that the recession would continue well into the second half of this year or even into 1992.

"The worst is behind us," he told the luncheon gathering.

Shared Assessment That sense of where the economy was headed before last week's events was shared by a number of other Fed policy makers. One of them, Robert Parry, president of the San Francisco Federal Reserve Bank, also agreed with Greenspan's assessment of the economically positive nature of what happened last week.

"It obviously does depend upon how quickly and how successfully the victory is achieved," Parry said, "but if things proceed as they appear to be, I am inclined to say it will make a big difference. We all know that high oil prices take a toll on growth. Therefore, when you see oil prices below what any of us thought possible, that has to be a stimulus to growth.

"Second, the decline in interest rates reflects the view that events {in the Persian Gulf} will be over in a short time. Those movements have to be positive as well."

"Even the dollar is down," he added. "The move has not been great, but most forecasts, ours included, is that the U.S. economy will grow as a result of exports, and if the dollar is high, then that would make it more difficult to export.

"All this argues for an economy that will be stronger than we thought and inflation less" with the recession hitting bottom "sometime before midyear," Parry continued.

Jerry Jasinowski, president of the National Association of Manufacturers, said he believes buying decisions by consumers and businesses may be taken off hold, given the Persian Gulf developments. "It's premature to say more than that, but the early stages of a successful military operation ought to deflate the excessive pessimism that has clouded consumer and business decision-making," Jasinowski said.

Parry, Greenspan and most private analysts all hedged their hopeful comments by stressing that the outcome in the Persian Gulf is still not certain. But, as Parry put it, each day that passes with only a "tepid" military response from Iraq will bolster confidence. Key to this confidence will be damage, if any, to Saudi Arabian oil fields and shipment facilities, the fear of which was the principal reason oil prices remained so high in the face of what amounts to an oil glut.

Phillip Verleger, an oil market expert at the Institute for International Economics here, said that the world is so oversupplied with oil that the Organization of Petroleum Exporting Countries will have to cut production of 23.5 million barrels a day to no more than 21 million over the next nine months just to hold the oil price at $20 a barrel.

David Hefter, manager of economic studies at Du Pont Co., said that in his view good news in the Persian Gulf and the impact on oil prices will assure that the recession will end by midyear.

"If this war is settled and a lot of uncertainties are gone, the big thing is lower oil prices, which means lower inflation," Hefter said. "For the consumer, if gas prices drop another 10 cents, he can use that money to buy clothes or something of that nature. It starts the ball rolling in the right direction."

Staff writers Cindy Skrzycki, Mark Potts and Paul Farhi contributed to this report.