Paris. -- Secretary of State James Baker's problem in trying to make peace between Israel and the Arabs lies in the wish of each side still to win, by means of the peace settlement, the war they did not finish in 1948.
This is what the diplomatic struggle is fundamentally about. The war goes on as what fashionably is described as ''low-intensity conflict.'' The Palestinians raid Israel from outside bases and conduct a rock-throwing insurrection in the occupied territories. The Israelis punish and jail Palestinians inside Israel and attack their installations in Lebanon and elsewhere.
Neither side yet demonstrates a willingness to accept less than victory. This is what makes the present situation different from 1977-79, when Egypt resolved to compromise and Israel reciprocated. Egypt's President Anwar al-Sadat -- with crucial help from the United States --negotiated a settlement by which Israel ceded the Sinai in exchange for a treaty of peace with Egypt.
Land was exchanged for peace. This provides the model for what the United States would like to see happen now in the Middle East. Mr. Baker has been pressing the Arab powers to recognize Israel's right to exist in peace, in exchange for an Israeli withdrawal from the occupied territories of Gaza and the West Bank of the Jordan, a Palestinian state to be created there. Mr. Baker would also like Israel to hand back the Golan Heights to Syria and end its indirect occupation of a ''security zone'' in southern Lebanon.
In both Arab and Israeli eyes, however, such an outcome would represent a qualified defeat of Israel and a victory for the Palestinians, since at last there would be a Palestinian state. The victory would only be partial since the declaratory policy of the Arabs has for many years been that Israel has no moral right to exist at all, having been established on land formerly Palestinian.
But precisely because the victory would be qualified, and Israel would in turn enjoy the victory of at last conducting its national life in peace, a ''land for peace'' settlement would seem the reasonable, if not the inevitable, end to this conflict that has poisoned not only regional but international relations for more than four decades. Many in Israel are prepared to accept such a settlement, if it could be agreed.
However, a second unresolved conflict exists, possibly equally difficult to resolve. It is the struggle within Israel between those prepared to trade land for an internationally guaranteed settlement and those who are convinced, whether out of geopolitical reasoning or Biblical conviction, that there has to be a Greater Israel that permanently incorporates the territories seized in the Six-Day War of 1967 -- Gaza, the Jordan's West Bank and all of Jerusalem.
Resolution of this domestic dispute is greatly obstructed, possibly precluded, by Israel's pernicious voting system of extreme proportional representation. This gives small parties of extremist conviction a blocking or blackmailing position in Israel's government when the major-party division is narrow -- as it has been now for many years.
Recent press reports say that Labor Party leader Shimon Peres has offered his party's support to Prime Minister Yitzhak Shamir's Likud coalition government if they were to accept the kind of settlement Mr. Baker proposes. This is one way out of the dilemma.
One reasonably asks, though, why Israel must make the tangible concession, that of land, which is also a tangible element in Israel's security. Whatever the justice of the 1948 war's outcome, or of all the wars since, Israelis have mainly wanted simply to live at peace. Israeli expansionists would be powerless today, as in the 1950s and 1960s, if Arab intransigence had not undermined Israel's moderates and promoted Israeli extremism -- to the objective cost of the Palestinians, who are the victims of both camps.
But history is unjust. Israel faces this demand to yield land for peace because no viable alternative solution exists. Some Israelis make an argument that Jordan really is ''Palestine," so that the Palestinians inside Israel's present provisional frontiers have merely to go to Jordan -- or be expelled there, which is the implied threat -- for matters to be settled.
This is a debater's stance, meant to prevent the settlement Mr. Baker proposes. It could not happen without Israel's totally alienating itself from its principal American and European sources of support. The actual choice is between land for peace and prolonged war.
Mr. Shamir and his colleagues surely recognize this. However, they cannot be expected to yield without explicit and ''irresistible'' pressure from the United States, capable of providing them with their domestic political alibi for making otherwise ''unacceptable'' concessions.
The means for such pressure are as obvious to Messrs. Shamir and Peres, and to expansionist Housing Minister Ariel Sharon, as to Secretary of State Baker. They are American withholding of loan guarantees that support fresh Russian Jewish settlement in Israel and reduction of U.S. subsidies, essential to Israel's economic well-being.
To exert such pressure would actually be a service to Israel, as Mr. Shamir surely understands. Mr. Peres does. One would think that Mr. Baker and President George Bush do, too. But the deed cannot be done without high drama in Washington politics as well as an ostensible crisis in U.S.-Israel relations. Afterward, it will be recognized as having been a necessary, if disagreeable, exercise in high statesmanship disguised in low politics -- a complicity for peace.
William Pfaff is a syndicated columnist.