President Bush's decision to seek congressional approval for cancellation of Egypt's military sales debt, combined with commitments of financial help from Europe, Japan and Arab friends is concrete recognition of the critical importance of a stable and economically viable Egypt to moderation and security in the Middle East.

There was a time when Egyptian leadership meant President Nasser rallying Arab public opinion around slogans of anti-imperialism and hostility to Israel. Today, having emerged from the isolation that followed its 1979 peace treaty with Israel, Egypt under President Hosni Mubarak is again in a position of leadership in much of the Arab world -- but leadership this time of a different kind. It is now President Saddam Hussein of Iraq who seeks to assume the mantle worn by Nasser -- though with a barbarism and on a scale not seen in Nasser's Egypt, and in a world fundamentally transformed.

The groundwork for the role Egypt is playing today was laid by President Sadat's strategic decision, first to seek a negotiated solution to the Arab-Israel conflict and a rejuvenation of his country economically, and second to turn to the United States as Egypt's principal partner in these endeavors. While Sadat's original goals remain only partly fulfilled, that partnership developed other dimensions whose benefits have become apparent in the current crisis.

The U.S. Central Command (CENTCOM), established in 1979 following the Soviet invasion of Afghanistan and the overthrow of the shah of Iran, has responsibility for the American military buildup in Saudi Arabia and the Gulf. CENTCOM has worked in close cooperation with the Egyptian military since its inception. Joint U.S.-Egyptian military exercises have been held annually. U.S. military assistance to Egypt since 1979 has introduced American weapons systems and created a network of professional relationships. The U.S. armed services have gained experience in a Middle Eastern environment and in contingency planning for staging U.S. forces through Egyptian facilities to the Gulf area -- experience that has been invaluable in the current deployment.

Egypt has also taken a number of actions that are important politically. When President Mubarak's quick trip to Iraq, Kuwait and Saudi Arabia July 24 failed to deter Iraqi military action, Egypt took the lead in mobilizing a number of Arab governments behind the United Nations Security Council condemnation and boycott of Iraq, and in support of sending Arab forces to Saudi Arabia. In these and other ways, including an Egyptian media blitz, Egypt has played a key role in giving the lie to Saddam Hussein's efforts to portray the crisis in ''America versus Arab'' terms. In the assertion of the authority of the United Nations to deal with dangerous regional conflicts, the contribution of Egypt to this process should not be underestimated.

Egypt played an important part behind the scenes in the PLO's historic decision in late 1988 to seek a negotiated peace with Israel, and it has worked closely with Washington to get Palestinians and Israelis to the negotiating table. Those efforts, already bogged down before the crisis, will someday need to be renewed. Egypt be able to play the role it is uniquely positioned to fulfill as an Arab country in good standing with most of the Arab world and the only one having relations with Israel.

All this justifies us in continuing to help Egypt cope with the severe economic problems it faces, including its heavy foreign debt repayment burden. Egypt's economic problems have been compounded by reductions in foreign exchange earnings attributable to the present emergency. These are due principally to a decline in remittances from the million or more Egyptians working in Iraq and Kuwait who are leaving by the hundreds of thousands and also to declines in Suez Canal tolls and tourism revenues. These constitute three of Egypt's four main sources of foreign exchange. As a modest exporter of oil, Egypt will benefit from the increase in oil prices, but such gains fall far short of offsetting losses on other accounts. Egypt faces the problem of absorbing the sudden influx of masses of returning workers in an already saturated labor market.

It is against this background that one must view President Bush's decision to write off $7 billion of Egypt's $12 billion debt to the United States. However frustrating this may be for those who are seeking to cope with our own fiscal problems and running short of patience with Egypt's seemingly endless need for economic assistance, it is incumbent on Egypt's friends to help cushion the economic pressures on Cairo. Given Egypt's pivotal role in the current struggle, whose outcome may well determine the future of the Middle East for many years to come, there can be no higher priority than ensuring that the Egyptian leadership retains the domestic support necessary to stay on its present course. When all is said and done, this is what our massive investment in the U.S.-Egyptian relationship over the past decade has been about.

The writer is a former American ambassador to Egypt.