Each side has drawn blood. The fighting is escalating. But the Argentine-British conflict will not be settled on the battlefield.

Even if the task force is battered and turns back this time, the British government can renew the campaign next summer. By the same token, though the British may kill or capture the Argentine contingent in Port Stanley, this could only fan Argentine resentment and guarantee another attempt, next year or in the next generation--and then with more troops, more ships and planes, perhaps with nuclear arms, perhaps even with Soviet aid. However intense the present fighting, neither side will defeat the other in the South Atlantic. There is no such thing as a military resolution of this conflict. It must be settled politically.

The British and Argentine positions look to be irreconcilable. Argentina says it will talk about anything, including withdrawal and joint interim administration, as long as the islands are acknowledged to be its "sovereign" territory. The British have said that the Argentinians must withdraw first.

But beneath the surface the British and Argentine positions are not utterly incompatible. London has not said that the Falkland Islands are and must forever remain British territory. From what has emerged so far, the British goveernment is apparently driven by other aims: the vindication of the prohibition against the use of force in international affairs and the interests of the islanders. But it does not so far seem to be asserting an actual claim of ultimate national sovereignty.

Perhaps this can be turned to advantage in the search for peace. The British government could state for all the world to know that it does not aspire to make the Falkland Islands a part of Britain, and that it renounces-- quitclaims, in lawyers' parlance--any rights it might have had to sovereign title.

The United States has followed this course in connection with disputed islands in the Caribbean. And so has Britain with respect to its other earlier interests in the New World, such as Guyana and Belize. It is important to us that it do so with respect to the Falklands/Malvinas-- or at least that the world understand that we do not support any sovereign pretensions by Britain. While Secretary of State Alexander Haig was attempting to mediate, Britain's ultimate objectives were less important. Now we are an ally. We are therefore identified in the world's view with Britain's purposes.

In Latin America and elsewhere, Britain is understood to be reasserting ancient colonialist claims. There is a real danger that Latin America will come to believe that the United States shares those purposes, and that the alliance is at bottom an alliance of imperialism. We will pay a heavy price unless the British make clear that they have no territorial aspirations in this hemisphere--or unless we make clear that we reject such aspirations. A renunciation of British sovereignty claims, in short, could serve at least the lesser but important purpose of making clear the limited war aims of this new alliance.

It also might just conceivably help to open the door to peace.

Perhaps the British position could be set forth in a way that would permit Argentina to withdraw, since it could, after all, be taken in Buenos Aires as eliminating the last sovereign claim competing with Argentina's. Argentina might then see presume that its ultimate objective of recognized sovereignty was inevitable.

Britain does have legitimate interests in the effort. The vindication of the ban against the use of force in international relations is one. The protection of the interests of the islanders is the other. These purposes deserve universal support. Neither would be compromised by a renunciation of ultimate sovereignty.

As to the first, Argentine withdrawal would constitute compliance with U.N. Resolution 502 and so uphold the point that might does not create right.

As to the interests of the islanders, there are innumerable formulas--Puerto Rican-style autonomy and local self-government underwritten by international guarantees, or voluntary buy-outs and relocations--all of which would be more satisfactory from the standpoint of world peace than the present circumstance. Self-determination has a satisfying ring to it. But it is not a universal panacea. Local populations do not have an absolute veto over the general welfare. Ask the Quebecois, the Welsh, the Basques, the West Bank Arabs--or any American Indian.

A British renunciation of sovereignty may not square the circle of conflict, but it could conceivably open the door to peace; and it would at least clarify American purposes. The United States has a desperate need to urge London to the step.