TEL AVIV -- Saddam Hussein's threat last week to first target "oil, the region and Israel" if the economic embargo begin to strangle Iraq was, to say the least, worrisome to Israeli officials. At the same time, they hope that Saddam's fiery words about a "deluge" will further strengthen the quiet cooperation Israel has had with the United States since the Gulf crisis began in early August. That hope was further strengthened last week by Secretary of State James Baker's assurances that the United States would retaliate against Iraq if Saddam attacks the Jewish state.

In Washington, it has been a busy eight weeks for the military intelligence attaches based at Israel's embassy. They are frequent visitors to the Pentagon, working with U.S. intelligence officers to piece together the latest information on Iraqi troop deployments, deciphering satellite photographs and trying to deduce Saddam's intentions. The data exchange has been stepped up to the point that some of the photos are sent to Tel Aviv to help Israeli air force pilots become better acquainted with potential targets in Iraq.

Israeli strategists have responded by recommending that the U.S. launch a first strike on Iraqi air bases, on facilities where chemical and nuclear weapons are being developed and on Saddam and his family. (When that kind of comprehensive attack was outlined by Gen. Michael Dugan, his apparently unguarded remarks to reporters so upset the Bush administration that Dugan was fired as U.S. Air Force chief of staff. Secretary of Defense Dick Cheney was said to be especially outraged that Dugan had revealed Israel's strategic advice.)

But if the current relationship has become in some ways the finest hour for Israeli cooperation with America, Israel's sense of satisfaction is likely to be short-lived. To be sure, the strategic alliance will continue, and the suggestion by Senate Minority Leader Robert Dole that foreign aid to Israel be cut is unlikely to be revived while Saddam is in power. But once the Gulf crisis is resolved, whether by economic blockade or military action, the entire region will have changed. The new playing field may have new rules, and there is every likelihood that Israel will be facing a greatly altered, and in some ways more threatening, Arab force.

The tense state of U.S.-Israeli relations during the first half of the year now seems very far away. But not long ago, President Bush and Secretary of State Baker were putting pressure on Israel to negotiate with Palestinians over the future of the occupied West Bank and Gaza Strip. Iraq's invasion of Kuwait "put Yossi Melman is an Israeli journalist. Dan Raviv is a CBS News correspondent based in London. They are authors of "Every Spy a Prince; The Complete History of Israel's Intelligence Community," published by Houghton Mifflin. our good relations back on track," Israel's new foreign minister, David Levy, said after returning home from his first visit to Washington. Other officials see a chance of returning to the "golden years" of U.S.-Israeli cooperation under Ronald Reagan.

The Israelis try to restrain themselves from saying, "We told you so," when harking back to their repeated warnings about Saddam, his chemical arsenal, his sprint toward a nuclear bomb and the growth of Moslem fundamentalism. Those are the Middle East's real problems, Shamir and his ministers keep saying, more than the Palestinian question.

The chain reaction already triggered by Iraq's aggression reminds Prof. Itamar Rabinovitch of precedents going back to the 7th century, when the Arab world was dominated by three traditional power centers. "As Cairo, Baghdad and Damascus struggled for regional hegemony, they formed and broke new alliances," the Tel Aviv University professor says. "Today we are witnessing once again a new reshaping of the political map of the Arab world." Almost everyone from Mikhail Gorbachev to the kings of the Arab world seems to understand that Saddam's true motives go beyond oil fields and territorial disputes. In a conversation he had five years ago with another Arab leader, according to a participant, Saddam said his politics were inspired by Saladin, who defeated the Christian Crusaders 800 years ago. This analysis is supported by psychological profiles of the Iraqi leader, prepared and shared by Western intelligence services.

But pro-Western Arabs have also turned to the Middle Ages for inspiration. While thousands of his desert-trained paratroops and tank crews consolidate their positions alongside the U.S. 82nd airborne division, Egyptian President Hosni Mubarak is emerging as the rallying point for Arab opposition to Saddam's ambitions. The same countries that denounced Egypt for signing a peace treaty with Israel in 1979 now realize that they cannot do without Cairo, and the Arab League is moving its headquarters back there.

U.S. decision-makers, though, need not be confused in planning for the future. Assuming Saddam can be defeated, the new power centers in the Moslem world will be Cairo, Damascus and, perhaps, Tehran.

The Bush administration knows it will have to do even more for Cairo than forgive the $7 billion debt the White House proposes to cancel. Egypt's shattered economy cries out for an increase in America's $2.5 billion annual foreign aid. As for Syria, Secretary Baker has already visited Damascus this month, in a surprise that signaled a serious U.S. effort to lure Syria into the pro-American moderate camp. (In typical Mideast fashion, Syrian troops sent to defend Saudi Arabia now find themselves siding with Egyptian soldiers.) Faced with the near disappearance of their Soviet benefactors, the Syrians could use financial support; but first they will have to expel or disavow the various terrorist groups they shelter.

Known for shrewd diplomacy, Syrian President Hafez Assad and his government will demand that payment be made in Washington's Israeli "currency." Syria will want to see U.S. pressure on Israel to make territorial concessions in the occupied Golan Heights and to move toward talks with the PLO.

And then there is what could be the arms deal of the century: the possible sale of up to $21 billion worth of U.S. armaments to Saudi Arabia. The plan has been under challenge on Capitol Hill, but in its current proposed form -- $7.5 billion in weaponry to be sold immediately, the rest later -- the number of sophisticated warplanes, tanks, armored vehicles, and defensive missiles involved could substantially alter the Middle East power equation.

According to Prime Minister Yitzhak Shamir, Washington is willing to supply more weapons to maintain "our qualitative edge," but the U.S. rejected a request for satellite photos to be radioed directly to Israeli ground stations. Even if Egypt's debt is canceled, America seemed reluctant to forgive the $4 billion owed by Israel.

It is slowly dawning on Shamir and his nation that there are limits to strategic cooperation, even at the best of times. And they need to recognize that U.S. policymakers will tackle the Israeli-Palestinian dispute again -- perhaps more vigorously -- to bolster America's new alliances with moderate Arabs, and to contain the nationalism and religious fundamentalism that threaten the West's oil supplies.

For now, the intifada is in remission; the PLO's Yasser Arafat made a mistake by embracing Saddam as his new mentor. Shamir, though, knows that the Palestinian issue is not dead. And so far, the Shamir government does not have contingency plans for what is likely to come next: A new round of Anerican pressure on Israel to negotiate with the Palestinians -- if only as repayment of a political debt to moderate Arabs.

Yossi Melman is an Israeli journalist. Dan Raviv is a CBS News correspondent based in London. They are authors of "Every Spy a Prince; The Complete History of Israel's Intelligence Community," published by Houghton Mifflin.