There is a principled quality to American policy in Central America--a recently leaked administration document rather confirmed it by revealing that the secret American purpose is (are you ready?) to build democracy. But there is also a bullheadedness that is taking the administration toward a triple confrontation: with hostile governments in the region, with some popular forces and with sectors of American opinion.

To blunt that collision is precisely the intent of a commission organized by two hemispheric eminences, Sol Linowitz and Galo Plaza. Linowitz is a former ambassador to the Organization of American States and chairman of an earlier landmark report (by Americans only) on Latin America. Plaza was president of Ecuador and OAS secretary general.

Their new report boldly proposes to replace the deepening confrontation in Central America with a live-and-let-live rule to be applied within and between the conflicted states of the region and by both of the great powers.

Its point of breakthrough is in distinguishing between the prevailing Latin and American security bottom lines. Americans tend to worry about a loss of advantage or influence to Cuba or the Soviet Union, Latins about American intervention and crowding. But, the report insists, there is still ample common ground--in the homage both pay to the principles of self-determination and non-intervention and to social and economic progress.

On this basis, the commission urges everybody to talk peace. El Salvador, Guatemala and, yes, Nicaragua would talk with their oppositions. The United States and Cuba would join in. The United States would talk with the Soviet Union, too.

How could anyone think such a mass grope might work? The commission calculates that most governments and citizens of the hemisphere, perhaps even the revolutionaries, oppose an expansion of Soviet and Cuban military presence. They might sooner act on that interest if the United States accepted the difficult requirement imposed by its interventionist history and image and vowed to honor the sovereignty of all the region's states.

For procedural openers, the commission urges the United States to encourage the regional peace initiative launched by Colombia, Mexico, Panama and Venezuela. Current American policy works to discourage this so-called Contadora group.

The commission's core advice is to update the U.S.-Soviet understanding of 1962. In that accord, the Soviet Union removed strategic facilities from Cuba and pledged not to reintroduce them, and the United States promised to stop trying to invade or subvert Cuba.

The update would require Moscow and Havana to desist from strategic deployments and further conventional deployments in the region, and from threats to other states. Washington would accept a no-intervention commitment barring aid to both revolutionary and counterrevolutionary movements.

In sum, Linowitz and Plaza would cut back what the United States regards as the most threatening forms of Soviet and Cuban activity. They would offer assurances against external destabilization to Cuba, Nicaragua and Grenada, provided they respected their neighbors. And they would bring Cuba, a passive and resentful bystander to earlier Soviet-American accords, actively into the picture.

This sort of regional political freeze would be worked out, or worked on, by a combination of negotiations, nods and nudges over time.

Plaza and Linowitz--former secretary of defense Elliot Richardson and former chairman of the Joint Chiefs Gen. David Jones served on the commission's security task force--have drawn no road map. But they have done something perhaps more useful: sketched a vision of what the region and its relationships might look like at the end of the road.

Can you see Ronald Reagan, with his anti-communist outlook, moving to a framework in which the United States legitimizes a certain Soviet, Cuban and even Sandinista presence and role? It will strike a lot of people as being foolish and unfeasible: off the wall.

The argument for it, however, is that we would not only be legitimizing but limiting the Marxists, and meanwhile we would be banking the fires of war--in good Latin company, too. The Reagan policy is going too poorly for an alternative not to be fully explored.