AGAIN, WE ARe witnessing the deadly combination of South Moluccans - hysterical young men with guns - and hostages. This time they seized not only a train but also a school full of children, a particularly ugly innovation in the techniques of terrorism. Again, the confrontation verged on the surreal: the sober and cautious Dutch police, relying on experience and psychiatric advice to deal with the politics of the irrational.

If you look for the central issue in this desperate affair, you will perhaps find it somewhere in that contrast. The South Moluccans, a remnant of a dissolving empire, came to Holland in the late 1940s and live there now as a small and isolated minority - racially different, visibly separate, unassimilated. The original immigrants came to Holland as a refuge. It's the next generation, nearly all of them born in Europe, that is producing the gunmen.

The terroists' idea of extracting an independent South Moluccan republic from the Dutch is a fantasy, since the Moluccan islands are now part of Indonesia. One of the more bizarre aspects of this independence campaign is that it's all taking place in Holland, which is about as far from the South Pacific as you can get without a spaceship. It's not hard to imagine how the tough and heavy-handed military government of Indonesia would deal with this kind of terrorist challenge in the Moluccas themselves.

Terrorism occurs only where governments put a high price on life and civil liberties. You may have noticed that nobody seems to try taking hostages in, shall we say, Eastern Europe. You haven't heard much lately about the Tupamaros of Uruguay; the government there has settled their hash through methods that the Dutch would never countenance. But this latest incident is the fourth violent affront to the Dutch government by South Moluccan youths since 1970 and, hardly to anyone's surprise, public antipathies are rising. That's one of the reasons why terrorism is evil and corrosive. It challenges the restraints that civilized governments place upon their police - and upon their own power.