In the Mideast's political relignment forced by the Camp David accord, Iraq's hard-bitten leftist leaders are reaching for domination over the Persian Gulf's conservative oil monarchies -- a profound shift in the power balance of this vital strategic region.

Baghdad is no longer a backwater, and Iraq's Baathist socialists are no longer the outlaws of the Arab world. Fortified financially by fabulous oil revenues and ideologically by Baathist dogma of Arab unity, the Iraquis have partially achieved leadership over kings, sultans, emirsand sheiks on the Arabian peninsula. As for the future. Iraq's leaders consider these hereditary regimes rich, soft and unlikely to endure.

The rise of Raq has been intensified by Iran's disappearnance as a coherent political and stragic force. But the heart of Iraq's new eminence is Camp David. Instead of being isolated for rejecting the Israli-Egyptian accord, Iraq has replaced Egypt as the Arab pace-setter.

That new dominance distresses U.S. officials, who refer to Iraq's leaders "a band of thugs" and who contend that their centralized socialist bungling has been redeemed only by bountiful oil money. Yet, it is U.S. sponsorship of Camp David that not only freezes U.S.-Iraqi relations but enables Iraq to expand its influence.

President Sadam Hussein, the Iraqi general who this year added titular to longtime actual power, would like to assume the radical Arab leadership exercised in the 1960s by Egypt's Nasser. He may have an older role model: Saladin, reputedly born in the same town as Sadam Hussein. Just as Saladin expelled European Christian crusaders, so does Iraq's strongman seek to extinguish Western "imperialist" vestiges -- especially Israel.

This has enabled Baghdad to supplant Cairo in Arab leadership. But the new collaboration with the Gulf states in rejecting Camp David is not viewed as permanent by Iraq. "We now have Arab 'solidarity,'" Tariq Aziz, a deputy prime minister and leading Baathist theoretician told us, "but this is not Arab 'unity'. That will come when all the Arab states have similar political, economic and social systems."

Since Iraq obviously will not copy Saudi Arabia and Gulf emirates, Tariq Aziz wants them to be "similar" to Iraq. How? "By internal forces," he replied, quickly adding that Baathist socialists in these countries will be helped by Bagdad.

Baathist socialism -- revolutionary but anti-communist, Islamic but radical -- is backed by Iraq's 300,000-man, Soviet-equipped armed forces, now the area's strongest. Despite Iraq's "solidarity" with Arab neighbors, Baghdad is viewed with concern by the hereditary states. Kuwait, rich and weak, particularly worries about unsettled Iraqi border claims.

Worry they might, considering the historical determinism privately expressed by one influential Iraqi in describing the Gulf states, including Saudi Arabia: "These are weak regimes. They live on the surface of life. They are so rich that, really, they are abnormally rich. They cannot survive this way." Iraq wielding a dynamic ideology, exudes a political self-confidence lacking in the Gulf.

Iraqi officials point to differences between using oil revenue to finance private London spending sprees or to subsidize Arab resolution. Thus, while Gulf states cut back oil production, Iraq's leaders want no reduction (through technical factors may slightly cut levels here).

Iraq's oil reserves, second only to Saudi Arabia, are a trump card against Egypt's chronically ailing economy. The Baathist slogan here: "While Egypt needs the Arab world, the Arab world does not need Egypt." Iraqi officials chortle that Egyptian immigrnats pour into prosperous Iraq, underpopulated at 13 million.

But ideology, money and armed might would not propel Iraq into Arab leadership were it not for Camp David. If Israel returned to 1967 borders and a Palestinian homeland were established, Iraq would still denounce the existence of "the Zionist entity." "If every other Arab state recognized Israel," one Western diplomat predicted to us, "the Baathists here would still say 'No, never.'" Baghdad, not Cairo, would be in isolation.

The future of the Gulf and all its oil, then, is linked irrevocably, along with everything else that matters in the Mideast, to Israel. If Baghdad's revolutionary thrust toward the Gulf worries Washington, it is U.S. policy at and after Camp David that has fueled the rise of Iraq.