If North Korea decides to spurn international warnings and test-fire a ballistic missile, the first casualty may be South Korea's "sunshine" policy of seeking friendlier ties with the North.

President Kim Dae Jung said recently that the policy, a keystone of his administration, will continue. There is no alternative, he contends. But his supporters acknowledge it will be politically impossible to pursue engagement with the North while Pyongyang is shunning cooperation with the South.

Seoul, Washington and Tokyo, responding to reports of new test preparations by Pyongyang, have appealed to and warned North Korea not to test-fire a long-range ballistic missile, which would sharply increase tensions in the region. A year ago Pyongyang tested a missile that flew over Japan and seriously unnerved its neighbors. The immediacy of the current threat has diminished, and a Japanese defense official said last week there are no preparations that would indicate a launch within the next two months. And Pyongyang has floated a couple of hints that it is willing to negotiate over the issue.

But there is no guarantee those hints--or any resulting negotiations--would bear fruit. North Korea has continued to insist vigorously that it has a "sovereign right" to launch and will do so if it feels the time is right.

Domestic supporters and opponents of Kim's engagement policy in South Korea acknowledge that public reaction to a launch would probably force a halt in the most visible fruit of the sunshine policy, the cruise ships that travel from South Korea to Mount Kumgang in the North.

"The tours would have to stop," acknowledged Assemblyman Jay K. Yoo, a Kim supporter. "All of the aid must be halted if they fire again."

The tours, arranged by the Hyundai Group, have brought about 95,000 Korean tourists to the North's "diamond mountain," a scenic spot on North Korea's east coast that is rich in history. Although the tourists are denied contact with North Korean civilians, it is the first large-scale visitation from one side to the other since the Korean War.

Hyundai so far has paid North Korea $166 million for the tourism rights, and has promised $942 million over five years. Those payments have brought increasing criticism in the South, particularly with news last week that the impoverished communist government has purchased 30 MiG fighter planes and has continued work on the missile.

"We are on our knees with a bundle of money, saying, 'Please take it.' And North Korea is taking it with one hand and slapping us with the other," said Lee Jung Hoon, an analyst at Yonsei University.

Kim Dae Jung has long espoused a policy of replacing decades of bristling rhetoric toward North Korea with nonbelligerence and offers to increase economic ties. "Peace on the Korean Peninsula requires that we guard our security and promote reconciliation with the North at the same time," he said in a recent speech.

Skeptics in South Korea, which has been in a wary standoff with its northern neighbor since the Korean War armistice was signed in 1953, were compelled to curb their criticism after Kim took office in February of last year, but now they have stepped up their denunciations of the policy.

"It's naive and impractical" to believe the sunshine policy will alter North Korea's behavior, said Lee Hoi Chang, head of South Korea's main opposition party. "So far, it has had no effect at all."

"We are going to have harsh criticism from society and from our own people" if there is a North Korean launch, a presidential aide acknowledged, "but we have to stick to the engagement policy. There is no other way."

In step with the Clinton administration, Kim asked for and got National Assembly approval last week to continue the construction of two light-water reactors in North Korea. The reactors are key to a 1994 deal in which Pyongyang agreed to give up its nuclear program, and Washington is anxious not to further jeopardize the so-called Framework Agreement. South Korea has agreed to provide $3.2 billion of the $4.6 billion cost.

But many critics of the sunshine policy say it has failed in its basic purpose of moderating Pyongyang's policies. The North Koreans responded to Kim's policy by sending spy submarines into South Korean waters in June and December last year. And North Korean military boats engaged in a gun battle with South Korean vessels in June that left at least one North Korean craft sunk with an unknown number of crewmen.

"Sunshine was supposed to be a two-way avenue, but they have not reciprocated," said Lho Kyong Soo, a professor of international politics at Seoul National University.

Kim's supporters say there have been benefits of the engagement policy. The Kumgang tourism is the most obvious, they say, but they also see subtle changes in North Korean rhetoric as signs that a slight thaw might come. "They have stopped saying that South Korea is a puppet of the United States," said Yoo. "There have been lots of successes of 'sunshine.' Besides, we've done confrontation and strong measures in the past; it didn't help much."

Special correspondent Joohee Cho in Seoul contributed to this story.

CAPTION: South Korean soldiers stand guard after North and South Korean vessels exchanged fire in June.

CAPTION: North Korea may test a missile with a longer range than this one, launched last August.