Saddam Hussein has acted illegally and immorally by invading Kuwait and holding innocent hostages. The United States and the West have reacted righteously and mightily. Now, we must either face a disastrous counter-invasion or seize an opportunity for a comprehensive initiative for peace and stability in the Middle East -- one in which President Bush, who has mobilized a magnificent coalition against aggression, moves from massive military reaction to an American political and economic initiative in that region so full of resources and risks. Some steps toward that goal:

1. Rely on the U.N. Security Council and put U.S. forces under U.N. command to return the aggressor to Iraq. Surely, the 20th century has taught us that with U.S.-Soviet cooperation so mutually essential, we must reinforce and rely upon the U.N. to roll back aggression in regional conflicts.

The most nearly successful counter-invasions in 40 years were achieved by the U.N. command in Korea and the Organization of American States in the Dominican Republic. The most disastrous counter-invasions have been ours in Cuba, Vietnam and Lebanon, and the Soviets' in Afghanistan -- not to mention Israel's strikes into Baghdad and Beirut and our costly military intrusion into Grenada and Panama. Yes, it is a harsh world, but after the Cold War collective security can be made to work and to save lives. The United States should lead the effort.

2. All-out international effort by the U.N. to recover the hostages and repatriate the evacuees unbearably flooding Jordan.

3. Let the U.N.-sponsored economic forces squeeze Saddam Hussein out of Kuwait. If necessary, let the United Nations command force Saddam Hussein to release the hostages and push him back into Iraq. (You won't be surprised if I make a clear distinction from the good King Hussein, my beloved and beleaguered son-in-law who is the most genuine and essential peacemaker in the Middle East.)

4. Drop the announced goal of the U.S. soldiers fighting to restore the Sheik Sabah to his throne in Kuwait. The former rulers should be allowed to return and face a United Nations-supervised electoral process, with all qualified residents allowed to vote.

5. Propose for the longer-term solution to the fundamental problems of the Middle East an economic development plan financed by Saudi Arabia, Kuwait and the Gulf Emirates, Japan, the European community, the U.S.S.R. and the United States. This would offer real incentives toward peace and cooperation. It would involve a five-year conversion of military aid into development aid, an arms control agreement by all the principal parties including signature of a nuclear and chemical nonproliferation treaty, a reconstruction program for war-damaged countries, an International Monetary Fund rescheduling of massive debts owed by Egypt, Israel, Jordan, Syria and, yes, even Iraq and Iran.

Eligibility for this multi-billion-dollar plan would require release of all hostages, return of all occupied territories, right of return of refugees and a national commitment to the development of democracy and capitalism (as has been occurring in Jordan and Eastern Europe). This could eventually lead to a freer marketplace for oil and the possible dissolution of OPEC.

6. A renewal of the peace process -- concurrently but separately -- by the dispatch of a U.S. ''peace squad'' under Cyrus Vance and George Shultz to exploit the current cooperative spirit of Syria, Egypt and Saudi Arabia and the current peace-seeking efforts by King Hussein. The goal would be to develop an Arab-American peace proposal as a basis for negotiations between Israel and representative Palestinians, with these talks leading to an international conference to achieve at last a comprehensive settlement of the Arab-Israeli conflict.

Saddam Hussein has made some horrible miscalculations. He forgot the U.S.-Soviet Cold War is over and, therefore, the United States could be free to intervene to protect the oil flow and the price at the American gas pumps. He thought the world would accept his invasion of Kuwait as it had the Israeli invasion of Lebanon and the occupation of Palestine, the Soviet subjugation of the Afghans and our own raid on Gen. Noriega. He believed that in 1990 you could capture by force an outlet to the Gulf and stop Kuwait's pumping of oil out of the joint Ruwailah field.

He believed there is an Arab nation and he could command it if he commanded enough oil and captured the Kuwaiti billions. His contempt for the oil sheiks exceeded his compassion for the illiterate, poverty-stricken and hopeless peoples. The hypocrisy of this unholy man calling for a holy war will not sell even to the least-informed Moslems when they see the lot of the average Iraqi family.

But we don't need to match his miscalculations. We do need to understand what 200 million residents of the Arab Middle East need and expect of the West. They want the West to understand and treat them as fellow humans with equal rights and opportunities for health and wealth and education. Free of colonialism and occupation, they seek to live with an Israel contained within its United Nations-approved 1967 borders.

They seek societies in which wealth can be earned and shared through progressive taxation. They want a market price for the oil that is their only resource for the future and a fair sharing of the scarce water on which life depends. They want the best of Islamic tradition and American modernism.

Espousing these measures, President Bush becomes a world statesman as well as a prudent commander in chief.

The writer was assistant secretary of defense for international security affairs under Presidents Truman and Eisenhower.