HERE'S WHAT YOU LEARN QUICKLY IN IRAQ: The transformation of the country into a peaceful, free market democracy is a bigger, more demanding, and far more difficult project than you ever dreamed. Nonetheless, a year after the fall of Saddam Hussein, Operation Iraqi Freedom has gained impressive momentum. Iraq has traffic jams, street life, drinkable water, reasonably reliable electricity, and is about to experience an extraordinary economic boom, thanks to the $18.4 billion in reconstruction funds soon to begin arriving. Though terrorist attacks continue, they don't halt progress and are likely to be gradually beaten back.

But don't assume a growing economy and declining terrorism spell success. There's a serious obstacle remaining--the attitude of many Iraqis. Kurds, educated exiles who've returned from London and Detroit, and a good number of other Iraqis have embraced what Paul Bremer calls the "new Iraq." But many Iraqis haven't. They don't want Saddam back, but they look unfavorably on the American occupation. Like the French, they may never forgive America for having liberated them.

The immensity of the task in Iraq is really breathtaking. Iraq is a large country, with the north as different from the south as Boston is from Birmingham. All at once, America and its allies are trying to modernize a primitive banking system, assess and exhume scores of mass graves, revive Iraqi agriculture, create a respectable press corps, recruit and train police and a new army, replace worn-out and antiquated infrastructure, establish regulatory agencies like an Iraqi version of the Federal Communications Commission, start a public broadcasting system, and persuade Iraqis they're better off without heavily subsidized food, gasoline, and electricity. And that's just off the top of my head.

Iraqis want help. Indeed, they demand it and are angry and frustrated when they don't get it instantly. But they appear to hate being helped. Their expectation was an America capable of supplanting Saddam in less than three weeks would improve everything overnight. When that didn't happen, they grew frustrated. Now they're conflicted between lashing out at the American occupation and trying to get the full benefit of it. For success to be achieved, they need to buy into the program fully--democracy, free markets, rule of law, property rights, political compromise, and patience. They need an attitude adjustment.

Americans I talked to in 10 days here agree Iraqis are difficult to deal with. They're sullen and suspicious and conspiracy-minded. Maybe it's not their fault. Bremer, the Coalition Provisional Authority administrator and America's chief asset here, says Saddam's oppression was worse than the Communists' in Eastern Europe and Russia. At least there was a period of transition in the Communist countries when the terror was lifted and the rules liberalized. Iraq went from a totalitarian tyranny to an open society in a single day. That's bound to be traumatic.

But perhaps the problem is more basic. Seventy years ago, Iraq's first king, Faisal I, described Iraqis this way: "There is still--and I say this with a heart full of sorrow--no Iraqi people, but an unimaginable mass of human beings devoid of any patriotic ideas, imbued with religious traditions and absurdities, prone to anarchy and perpetually ready to rise against any government whatsoever." Having been cowed by Saddam, many Iraqis seem to be making up for it by distrusting their American occupiers and hectoring them whenever the occasion arises.

The press in Iraq feeds this mood. The two TV news channels that Iraqis watch, Al Jazeera and al-Arabia, are reflexively anti-American. So is the major news service, Reuters, and AP, staffed by Europeans, isn't much better. The liberation of Iraq has brought about a flowering of newspapers--nearly 200 of them--and that's a positive development. But the papers obsess on the subject of brutal treatment of innocent Iraqis by American soldiers. Terrorists who kill innocent Iraqis get softer treatment.

Tales of mistreatment are largely mythical. U.S. troops have been trained to be nice to Iraqis, strange as that seems. I saw soldiers deal respectfully with Iraqis all over the country. In meeting soldiers in World War II, Dwight Eisenhower had a great icebreaker. He would ask, "Where you from, soldier?" It put GIs at ease. I tried it in Iraq, and it led to friendly chats every time. The officers are fine, but it's the enlisted ranks these days that are most impressive. They're polite warriors.

Two incidents dominated the Iraqi press in late March. In one, six soldiers were charged with assaulting detainees at a military prison, a breakdown in discipline that infuriated the top American commander, Lt. Gen. Ricardo Sanchez, and the chief spokesman, Brig. Gen. Mark Kimmitt. In the other, two Iraqis working for al-Arabia TV were killed in a clash at a checkpoint. The exact details were unclear.

Bremer and Kimmitt went to unprecedented lengths to soothe Iraqi anger over the killings, quickly ordering an independent investigation. They met privately with Iraqi journalists. And Kimmitt discussed the case at briefings on the record. The point is he and Bremer didn't play down or ignore the incident. This got them nowhere with Iraqi journalists, who have reacted hysterically. Their questions at briefings are mostly of the why-are-you-Americans-picking-on-Iraqis variety. They rarely inquire about the progress of investigations of terrorist attacks.

The new Iraqi media are as close as you can get to a proxy for the Iraqi people, at least in the Baghdad area. Iraqi reporters have been coddled by the military and Bremer's CPA in hopes they'll evolve into a responsible free press. TV reporters were given millions of dollars of state-of-the-art equipment. At briefings, Iraqis get a simultaneous translation, and they're allowed to ask most of the questions. Special backgrounders are conducted for them. A group of Iraqi reporters meets weekly with Bremer, a break American journalists don't get.

The experiment hasn't worked. When Secretary of State Colin Powell appeared at a press conference here last week, the Iraqis called for a moment of silence for the two dead TV journalists. Then one read a tendentious statement, complaining the United States has neither made Iraq safer nor stopped terrorism. This was followed by a walkout, as Powell stood silently and watched. Several days later, the entire Iraqi press corps marched on the "green zone," the American headquarters, with a letter of protest for Bremer. Rather than professionalized, the Iraqi press has become politicized.

True, Iraqi journalists act better than they did months ago, when all the questions were barely disguised accusations or simply based on rumor. Journalism training provided by the CPA and other organizations has helped. But a journalism teacher in Iraq wrote in the Washington Post that her students cling to the idea that their job is to read the news--not report it--and then comment on it. Likewise, Iraqis watch the news about the occupation, then comment on it, negatively.

I'VE DWELT ON THE BAD NEWS. The truth is the difficulty with Iraqis--their whining, their ethnic squabbling, their anti-Americanism--hasn't diverted Bremer from his relentless nation-building. He knows the Iraqi attitude problem can't be solved overnight. And while the security environment here is dodgy, the only downside of terrorist attacks on the creation of a new Iraq has been to discourage foreign companies from rushing in with large-scale projects. In short, the American intervention is so powerful and all-encompassing that it overshadows everything else. It is strongly led by Bremer, well organized, and undaunted. The CPA has spread teams of experts, academics, administrators, bureaucrats, and consultants throughout the restructured Iraqi government and private sector. Visit the new central bank and they're there. Travel to Kurdistan and you'll run into them.

I didn't understand the breadth of the effort until I noticed a press officer's list of phone numbers of senior advisers in various fields. The fields were agriculture, standards and quality control, culture, displaced persons, education, electricity, environment, finance, foreign affairs, health, higher education, housing, human rights, industry, interior, water, justice, labor, security, oil, public works, planning, religious affairs, science, trade, transportation, youth and sports, Baghdad, civil affairs, governance, Iraqi media, oil policy, infrastructure, private sector, and strategic communications. Amazing.

The most encouraging trend in Iraq is solid economic growth, sure to be followed by torrid growth. The economy was run into the ground by Saddam. The GDP for 2003 was $20 billion, less than Americans receive from the Earned Income Tax Credit. Unemployment, as best anyone can tell, exceeded 60 percent. Already GDP for 2004 is expected to reach $24 billion or $25 billion, and joblessness has dipped below 30 percent, according to Bill Block, a Princeton-educated economist for the Treasury Department now working for the CPA. Bremer thinks unemployment may have already fallen to less than 20 percent.

This summer the Iraqi economy will be on the receiving end of the biggest stimulus in history. Mike Fleischer, an economic adviser and brother of former White House press secretary Ari Fleischer, has made a back-of-the-envelope calculation that money paid to Iraqis annually from the reconstruction budget over the next few years will amount to 6 percent of GDP. That's staggering. A comparable injection of new money in the U.S. economy would be nearly $650 billion a year. The Bush tax cuts pale in comparison.

And the money will enter an Iraqi economy that suddenly is among the freest in the world. Iraq has no tariffs or duties, a flat tax rate of 15 percent, no restrictions on capital investment, few regulations that are being enforced, and a new currency that's actually strengthened since its introduction last December. The only dinars with Saddam's face on them are sold as souvenirs. Of course the economy is still primitive in many ways. All transactions are done in cash. There are no credit cards or ATMs, and no privatization of state-owned companies has taken place.

But a consumer-led surge is underway. Where the money came from nobody knows. The assumption is people hoarded cash instead of depositing it in banks that Saddam might loot. Now they're on a spending spree. Satellite dishes, banned under Saddam, sprout from nearly every roof. A half-million or more used cars have been imported from Jordan, Kuwait, and Turkey. Cell phone use is soaring.

Fleischer likes to take visitors for a tour of the Karrada shopping district across the Tigris River from CPA headquarters in Saddam's Republican Palace. Boxes of refrigerators, TVs, generators, and small appliances are piled in front of stores. Vacant storefronts and bare lots are being turned into retail businesses and new buildings. "Nothing says optimism to me like putting up a new building," says Fleischer. What also says optimism is the return of hundreds, perhaps thousands, of exiles with money and schemes for investing it.

A hot economy could have a significant social and political impact. For one thing, it might ease Iraq's religious and ethnic tensions. For another, it would make the decision to abolish bankrupt nationalized enterprises acceptable because the 500,000 employees could find jobs in the private sector. And growing incomes would allow Iraq's first elected government to begin decontrol of prices. With that last step, Iraq would have a truly modern economy.

At the moment, only half the economy stands to thrive, the Wild West capitalist half. The other half is socialist, not only the so-called SOEs (state-owned enterprises) but the subsidies for food, gas, and electricity. Iraqis pay a pittance for gas and virtually nothing for food and electricity. The economic consequences of this are destructive. It necessitates high taxes, which grabs money that might be put to more productive uses. Bremer, in a rush to lock in reforms before handing sovereignty to Iraqis on June 30, wants to start decontrolling prices this spring.

Block, the Treasury economist, believes the Iraq economy will grow 7 percent to 9 percent a year for the next decade. Were Bremer staying on for the next 10 years as Iraqi viceroy, robust growth could be all but guaranteed. But he will hand over sovereignty to Iraqis on June 30 and be replaced by an American ambassador who won't have his sweeping power and may lack his political skill as well. A massive American presence--100,000 troops and the largest U.S. embassy in the world--will remain, but American influence will begin to dwindle. Before the end of January 2005, a democratically elected government will take office, further eroding U.S. clout.

For the past year, America and its allies have held Iraq together. Bremer's handpicked Iraqi Governing Council was willing to compromise and sacrifice for the common good. The question is whether elected officials will do the same or represent their narrow ethnic, religious, or regional constituencies. I have my doubts. But an American official who's worked closely with Iraqis and whose views I respect differs. "Don't underestimate the sense of Iraqi national pride, despite the strong sectarian identification," he says. "Saddam's equal-opportunity repression has created a sense of community among very disparate factions. Kurds and Shia and even many Sunnis have mass grave and torture chamber victimhood in common....Attend something as seemingly superficial as an Iraqi sports event and you'll see what I mean about national pride."

Should national unity prevail, Iraq's chances of becoming a stable democracy will improve dramatically. I'd like to see one other thing in Iraq, an outbreak of gratitude for the greatest act of benevolence one country has ever done for another. A grateful Iraqi heart would be a sign of a new Iraqi attitude and a signal of sure success.

Fred Barnes is executive editor of The Weekly Standard.

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