An anxious, disorderly, joyful queue forms every day in a windowed hall of the Interior Ministry here. The object of desire, some 60,000 of which have been issued thus far, is a green and gold passport imprinted with the eagle and crest of Palestine.

The Palestinian passport is a powerful symbol for a people whose political identity has been defined since 1948 as "refugee." It is a tangible sign of changing times and a cure, perhaps, for the numberless humiliations that await the stateless and visaless at border crossings around the world.

"It's overwhelming," said Mohammed Albeltaji, 61, clutching his first passport tightly and recounting all the times he was shunted aside at immigration posts when he showed them the Egyptian travel document he used to hold. "It's beyond the imagination. Now everyone will know who I am."

The passports are not yet entirely Palestinian, their issuer not entirely a state. But Palestine means something concrete now after decades of rhetoric and bloody struggle. In this crucial time of transition in the hundred-year conflict between Arabs and Jews, a survey of Palestinian self-rule in the Gaza Strip and West Bank shows the nucleus of an independent homeland has formed that is taking on the attributes of a state.

Last month saw the first democratic election for Palestinian leadership. This month Yasser Arafat placed his right hand on a Koran and swore an oath of office "to maintain the interests of the Palestinian people and their land, and to fulfill their national aspirations, as God is my witness."

In a grandly domed structure off Omar Mukhtar Street, from which foreigners ruled Gaza for 38 years, there are 88 microphones on 88 desks awaiting the legislature elected with Arafat. When the new leaders convene March 7 in the White House government building built by Egypt's Gamal Abdel Nasser, they will govern their people with many of sovereignty's practical powers.

The Palestinian Authority flies a national flag and issues license plates, business permits and stamps. It writes laws and enforces them, collects sales and income taxes, issues international contract tenders and conducts diplomacy at the level of foreign minister and head of state. Its khaki-clad police force of 30,000, equipped with modern assault rifles and armored personnel carriers, is an army by any other name, albeit a modest one.

In the places where the 2.3 million Palestinians of the long-disputed territories live -- in the 139-square-mile Gaza Strip and the towns and cities of the West Bank -- there is no other form of government.

The decisive round of talks between Palestinians and Israel will start in May. Negotiators will try to decide where Israel's permanent borders will lie, how much territory the Palestinians will rule and whether the Palestinians will reach full independence in the end.

Meanwhile, the emerging Palestinian state is overmatched and held in check by the regional superpower at its side. The historic accords of the last two years, under which Israel has withdrawn from some of the land it conquered in the 1967 Middle East war, have left a hodgepodge of sovereignty on the West Bank and a political map so full of spots that Palestinians call it "the leopard."

Anything like a border is under Israeli control, including those from Gaza to Egypt and the West Bank to Jordan. When Israel wishes -- as it did the very day that Arafat was sworn in -- it can choke the flow of Palestinian goods and people to a halt.

By an intricate system of "liaison" and "coordination" measures, the Jewish state also retains a veto over nearly every Palestinian decision of economic and military significance. Arafat tried to build a seaport without Israeli approval in 1994; Israel blocked shipment of the requisite cement, and the half-built structure fell into the sea. This year Israel halted construction of an airport until Arafat agreed to rotate the landing strip 10 degrees.

Even so, there is growing impetus to independence: in the mutual desire of Palestinians and Israelis to unclench their fists, in the incremental logic of their peace talks and above all in the democratic will of the Palestinians. When 745,902 men and women turned out to vote on Jan. 20 -- with results certified, warts and all, by international observers -- they gave Arafat and his elected legislature a mandate that could not be claimed by Israeli military rule or its predecessors in power in the West Bank and Gaza.

"Who runs national elections?" asked Ziad Abu Amr, who won a seat on the Palestinian Council. "Nations."

Acting Chairman Salim Zaanoun of the Palestinian National Council, once a tribune of irredentism from exile, said "two ideas were dropped" when Israel and the Palestine Liberation Organization signed a mutual recognition agreement in 1993.

"The first was a Greater Israel," he said, "and the second was a Palestine from the river to the sea. These two ideas were replaced by one -- that Palestine is two countries for two neighboring people." What the Polls Say

This straitened, limited, halfway state is gaining a hold in large part because most Israelis are coming grudgingly to accept it.

Opinion polls say they do. One remarkable measure of the change is that Israeli Jews, by 41 percent to 34 percent, are now more inclined to see Arafat as a statesman than a terrorist, according to the Tami Steinmetz Center for Peace Studies at Tel Aviv University. That reverses a decades-long view, and one still held (44 percent to 23 percent) as recently as December 1994.

Even more telling, perhaps, is a six-year tracking poll done by Haifa University professor Asher Arian. Most Israelis still oppose the concept of a Palestinian state, although the number in favor (39 percent) is at a historic peak. But fully three-quarters of Israeli Jews now predict it will happen within a decade.

"There's a kind of anticipatory air about a Palestinian state," Arian said. "Even where people oppose it, it is not foreign, not unthinkable anymore."

The new Palestine, in turn, is emerging as a society that is likewise losing its zest for combat, although the threat of extremism, and terrorist attacks by militants, remains.

When asked whether they believe Israel has a right to exist, according to pollster Jamil Rabah at the Jerusalem Media and Communication Center, 65 percent of Palestinians questioned in the self-rule zone say no. But a clear majority, 73 percent to 18 percent, say they support the latest peace deal signed last September.

The case of Yasser Najjar offers an example of attitudes among the new self-rule elite. He keeps a photograph of his father on his desk, and the story he tells about it describes a world turned upside down in just a few years.

Najjar's father, Mohammed Najjar, was a senior leader of the PLO's Black September extremist wing. He helped plan the attack at the 1972 Munich Summer Olympics that killed 11 Israeli athletes. Prime Minister Golda Meir ordered revenge.

On April 10, 1973, when Yasser Najjar was 11 years old, elite Israeli army troops led by Mossad secret police agents broke down his door and killed his father before his eyes in their Beirut apartment. He said he watched his mother gunned down, too, because "she got in the way. She tried to protect my father."

Yasser Najjar, now 34, is a mid-level manager in the Ministry of Planning and International Cooperation. Najjar is proud of his father and refuses to accept that killing athletes was more repugnant than the violence of Israeli occupation over the years. But he believes in the unfolding peace with Israel, and he cannot contemplate a return to the old ways.

"He was a different generation," Najjar said, speaking of his father. "We will never measure up to him and people like him. But the nature of the struggle has changed dramatically. Today it's a worse struggle: coexistence. It's like a wife that you don't love, but you have to stay married. The Palestinian and Israeli people will inevitably work it out, to both their benefits." Swiss Cheese' Road Grid

Which is not to say that new thinking has sunk in everywhere.

The 10th-grade history book taught on the West Bank now, "Modern Arab History, Part II," is the same Jordanian survey text that Israeli occupation authorities used to reprint with offending pages and chapters removed. Now the unexpurgated version is used, and it has not caught up with the politics of compromise.

The map of Palestine on Page 66 shows two colors: green for the West Bank and Gaza (labeled "Arab land occupied in 1967") and purple for the rest of Israel (labeled "Arab land occupied before 1967"). Zionism, the textbook says, used European colonial powers to impose a Jewish state "that took Palestinian land as its base."

"The students from Jaffa, they won't forget that this is their land," said Principal Janet Michael of the Ramallah Secondary Girls' School. "It needs time, not one or two years."

For many Israelis, the "leopard-skin" pattern of authority now imposed on the West Bank is more than an interim arrangement. It is the guarantor that the Palestinian authority will never be able to achieve full statehood. When the Likud Party ruled Israel from 1977 to 1992, the government built Jewish settlements around and between the big West Bank Arab towns, so as to hem them in and cut them off from each other. A new system of roads was constructed to connect the settlements to Israel, and to each other. Right-wing ministers boasted that they had turned the West Bank into a "Swiss cheese" with the Palestinians in the holes, making a separate state impossible.

That controlling grid still exists. A Palestinian traveling from Bethlehem along the main north-south highway in the West Bank to the towns of Ramallah and Nablus passes numerous settlements built along the highway and must traverse four Israeli army checkpoints, any of which could turn him back or delay his journey for an hour or more.

Whether the grid pattern will be relaxed may well depend on the Israeli election scheduled for May 29. The mainstream opposition party would halt negotiations with Arafat where they stand and permit nothing more than local "autonomy" in the territories where Palestinians live. The opposition leader, Likud Party Chairman Binyamin Netanyahu, still regards Arafat as a terrorist and said he would not meet with him if elected. We Are the Authorities Now'

Arafat has the Arabic title of raees, the same one used by Egyptian President Hosni Mubarak. Israel is not quite ready for "President Arafat," and so the accord signed last September provides no English translation. Most countries that have relations with Arafat, including those of Western Europe and Japan, call him president nevertheless.

In practical terms, Arafat's powers are nearly unlimited. He commands at least seven competing security forces, has sole control of patronage and wields the only signature that matters on the Palestinian Authority's official budget -- plus at least two other budgets known to the International Monetary Fund. He receives heads of government, such as British Prime Minister John Major, with entirely parallel protocol at his beachfront headquarters here.

Palestinians grouse about "the Sulta," as the self-rule authority is known, but by and large they relate to it as their own. And in most parts of their everyday lives, they are governed now as though Israel were a continent away. Their license plates all start with "P," for Palestine.

The supervisors who come to check published prices in Mohammed Mugrabi's variety store -- where a hot seller is a "State of Palestine" wallet for $1.17 -- are from the Palestinian Authority.

"If we know he's from the Ministry of Economy, we give him the right price," Mugrabi said, smiling. "But if an ordinary person comes along, we can play with it a little bit."

Faisal Abu Rous, who owns the Saffa shoe store here, pays a 17 percent value-added tax and income tax to the Palestinian Authority. Recently, when he tried to renew his business license, he found out "you have to get a fire extinguisher and bring people from the civil defense authority to check that the store is safe from fire and electrical accident."

When a man in a divorce case threatened Judge Talalat Tawil in the Ramallah District Court, Palestinian policeman Dib Shawabki arrested him and sent him to jail to face charges of contempt of court. Shawabki, 20, wears a badge on his hat with the national colors -- black, white, red and green -- and a single word in Arabic: "Palestine." Once helpless to summon witnesses, compel evidence or jail those found in breach of law, the courthouse has taken on a new life with the arrival of men and women like Shawabki.

"We are the authorities now," he said.

Judge Iman Naser Eddin, in her stark stone courtroom the other day, heard the civil damage case of Fadel Abu Sneineh, a 6-year-old who fractured his skull when a Palestinian driver ran him down. During the occupation, the lawyers said, such a case would go to clan negotiation, and possibly result in violence. Israel enforced few judgments of the Palestinian civil courts, and people turned to other means of solving disputes.

"Since the end of the occupation and redeployment {of Israel's army}, we have the power to execute our judgments with Palestinian police," Judge Eddin said, and her docket is growing accordingly.

Where Israel's hand still controls Palestinians, it is generally much less obtrusive than before. The passport offers an example. It works like a real passport, no doubt of that. About 55 countries, including the United States, accept it officially.

"Whoever tells you this is only a piece of paper has never pulled it out at a crossing point and presented it to an immigration official and said, I am a Palestinian,' " said Jamal Shannat, who directs the passport office. Yet the picture is murkier than that because the Palestinian Authority does not have the basic power of a government to determine who are its citizens. To get the passport, a Palestinian must have an identity card, and identity cards are still controlled by Israel.

During 28 years of occupation, Israel's military government developed a system of tracking Palestinians by identity number, religion, date and place of birth, and names of mother, father, grandfather and clan. Before the army withdrew from Gaza and the West Bank cities, Palestinians had to apply directly to the occupation authorities for a card.

Now Palestinians apply to their own Interior Ministry, but the ministry passes the paperwork to a "district coordinating office," run jointly with Israel. Strict equality of protocol governs the office, which in practice means that Israel has a veto. The new Palestinian identity card is still written in Hebrew and Arabic and bears the same number and data as before. At the top, though, in both languages, it says Palestinian Authority.

Terje Larsen, a Norwegian political scientist who is the special United Nations representative here, compared the construction of Palestinian public life to the early days of Zionism in Israel:

"I say to Arafat, The Palestinians are the Jews of the Arab world.' He likes it. He thinks it's a compliment. I would say the formation of a state is unstoppable. Those who do not realize that are making a major political mistake."

Abu Amr, the new legislator and a longtime professor of political science at Bir Zeit University, said Larsen hit upon a crucial insight about Arafat.

The PLO leader knows he has "a certain political and societal structure that resembles a nation-state" without the full measure of sovereign power. But he has learned to take what he can get, Abu Amr said, and make the most of it.

"This is the way Mr. Arafat thinks," he said. "You create a new reality. I think he has benefited from the Zionist experience that you can change reality only on the ground." About This Story

This article is the first of three reports on the character of the Palestinian homeland emerging in the Arab territories occupied by Israel since 1967 and its significance for the Middle East. Part one describes the complex picture on the ground after 21 months of Palestinian self-rule in the Gaza Strip and West Bank. Part two explores the effect on Arab politics of the movement toward Palestinian statehood, a development whose regional impact resembles the fall of the Berlin Wall. Part three records the fits and starts of Arab "normalization" with Israel. CAPTION: NUCLEUS OF A NATION

The September accord between Israel and the Palestinians created a patchwork political map that Palestinians call "the leopard." Nearly all the Arab population lives within the black and gray areas on the map, and Israel has promised to turn over some additional open lands now marked in white. Vital statistics of the emerging Palestinian homeland: Gross domestic product: $3 billion Population

2.2 million West Bank

1.3 Gaza

0.9 Age under 15

47% Area (square miles)* West Bank

2,263 (about the size of Delaware) Gaza

139 (twice size of the District) Registered refugees West Bank

27% Gaza

64% Literacy

84% Voter turnout (Jan. 20)

80% * Includes areas still under Israeli control SOURCES: Interim Agreement on the West Bank and Gaza Strip; Palestinian Central Bureau of Statistics; CIA World Factbook CAPTION: Gazan Ziad Batani displays his Palestinian-issued passport. (Photo ran in an earlier edition) CAPTION: Local authorities: Palestinian woman has travel documents checked by Palestinians, a matter that Israelis previously handled. CAPTION: Documentation: Jamal Shannat, above, is director of the Palestinian office for passports, where his signature is a key step before the documents are issued. Yasser Najjar, left, another Palestinian official, displays a photo of his father, who was killed by Israelis after he took a major role in planning the attack on Israeli athletes at the 1972 Munich Olympics. CAPTION: Swearing-in ceremony: Yasser Arafat, with senior Palestinian officials at his side, took the new presidential oath of office Feb. 12 in Gaza City.