The cold war between Greece and Turkey has shifted its focus from Cyprus to the Aegean and now, within the sea, from exploitation of resources under the continental shelf to the possibly explosive issue of Greece's expansion of its territorial waters to 12 miles. It creates a danger and an opportunity that American policy has yet to address.

With ratification of the new Law of the Sea, Greece has the legal right to extend territorial waters of each Aegean island from six to 12 miles. Such an extension would, however, all but eliminate the international waters currently existing in this sea. For Turkey such an extension would touch a vital interest: It would deprive Turkey's two major ports, Istanbul and Izmir, of unhindered access to the rest of the world, and would turn the Aegean into "a Greek lake." Last year, then-Turkish premier Tansu Ciller warned that such an extension would become a "cause of war."

Since then, Turkey has escalated the pressure on Greece by disputing Greek sovereignty on certain islets in the Aegean. Most recently Turkey objected to the inclusion of Gavdos Island south of Crete in military exercises under NATO, indirectly questioning Greek sovereignty. The matter was brushed aside as a misunderstanding, but the Greek public saw it as a serious escalation of alleged Turkish claims on Greek territories.

Unless a solution is found, Turkey will continue escalating in an effort to force Greece to abandon the 12-mile extension. This may well lead to an armed confrontation.

As of now, this cold war has been kept under control because neither country wants an armed conflict. Still, preparations for the eventuality of a military confrontation are extremely costly for both, coming at a time when they face serious economic and social problems at home.

The Greek government announced a few weeks ago that to catch up with modern Turkish weaponry it intends to spend $10 billion on armaments over the next five years -- a colossal sum for the Greek budget. Moreover, continuing provocations undermine Turkey's effort to gain admission to the European Union, a step strongly desired by Turkey's pro-European elite.

For too long diplomacy has focused on airspace violations and disputed islets. It is time now to turn to the fundamentals. Greece does not accept any challenge to the international treaties that have established its boundaries. Turkey, for its part, will not accept the extension of Greek territorial waters in the Aegean to 12 miles, an option Greece refuses to give up.

Since for Greece the inviolability of its borders is paramount, any solution will require as a first step an internationally sanctioned declaration by Turkey recognizing as final, inviolate and indisputable the treaties defining Greek sovereignty, especially over the Aegean islands.

In return, Greece will have to accept the fact that the Aegean has a unique status combining Greek sovereignty over the islands and their territorial waters with an international aspect as a sea open to international navigation. Proof of this acceptance will be a formal pledge by Greece not to implement the 12-mile extension for as long as Turkey respects Greek sovereignty over the islands. As a further gesture of good will, Greece should also become the strongest advocate of Turkey's admission to the European Union instead of being the most vocal opponent.

Such a compromise would safeguard the vital interests of each country -- for Greece, respect for its sovereignty; for Turkey, unhindered access to main ports throughout the Aegean.

The American government has been promoting "confidence-building measures," but these do not touch the real causes of the conflict. Turkey and Greece have serious reasons to accept the suggested compromise solution especially if it has Washington's blessing and behind-the-scenes encouragement. The writer is author of books on the Mediterranean region.