IT'S THE BIG ISSUES that matter in President Bush's brand of conservatism. So he's strong and principled on taxes, cloning, the Kyoto treaty, the war on terrorism, Iraq, missile defense, and federal judges. It's a different story with the smaller issues. Bush strays on them--education, trade, farm subsidies, ethnic profiling, campaign finance reform--for shamelessly pragmatic purposes. More often than not, his aim is to prove his conservatism really is compassionate or to broaden his political base. This arrangement satisfies most conservatives and a lot of moderates and independents. The problem comes when the president retreats on a big issue, as he's about to do by proposing a "provisional" Palestinian state.

Though Bush's embrace of an interim state is highly conditional, his plan will be harmful to him nonetheless--morally, strategically, and politically. The moral angle is quite simple: He's rewarding Palestinian terrorism. Palestinian leader Yasser Arafat has failed to deliver a promised speech denouncing suicide bombings, and he hasn't arrested any Palestinian terrorists either. Yet his regime would suddenly be moved a large step closer to full statehood. And Bush would also weaken his brave and lonely support of Israel as it suffers relentless terrorist attacks. That has moral undertones as well.

The strategic problem involves the president's alliance with Saudi Arabia, home of 15 of the 19 September 11th hijackers. The Saudis have never played a helpful role in promoting a peace settlement between Israelis and Palestinians, and they're the prime exporter of radical, anti-American Islam around the world. In 2000, when Arafat was offered generous terms for a Palestinian state encompassing nearly all of the West Bank and all of Gaza, the Saudis did nothing to pressure him to accept, and Arafat rejected the deal. (Last week, with the deal off the table, Arafat said he'd accept it.) Administration officials say the Saudis are being unbelievably helpful now. "They're the new kid on the block and they're sending all the right signals," a Bush aide says. This time, the aide says, they're pressuring Arafat to do the right thing, such as crack down on terrorists. But if the Saudis truly want to promote peace in the Middle East, they'll allow American planes to use their bases when and if military action is taken against Iraq. Don't bet on it.

The political problem for Bush is his own administration and party are deeply divided. Many believe peace overtures to the Palestinians are wrong morally and politically. After Bush first declared himself in favor of Palestinian statehood in a speech to the United Nations last November, a doubtful White House official said privately: "We should be in the business of destroying terrorist states, not creating them." And a terrorist state is exactly what some officials fear Bush will be hastening with his new proposal. Their expectation is the Palestinians won't meet the conditions, but they'll get provisional statehood anyway, if only because Arab states, the European Union, the United Nations, Russia, and nearly every other country in the world will insist on it. The result: a provisional terrorist state. Bush doesn't seem worried about this possibility. An aide says the president is convinced the Palestinian people need "a reason for hope." Bush told a Republican fund-raiser last week, "I love peace."

Bush isn't guilty of flip-flopping on a Palestinian state. In truth, he's been on a slippery slope since his United Nations address last fall. Then, he made only a fleeting reference to "two states, Israel and Palestine." And he said "incitement, violence, and terror" must stop. They didn't stop, particularly terrorism against Israelis. But in April, prodded by the Saudis, Bush elaborated on the statehood theme. "The United States is on record supporting the legitimate aspirations of the Palestinian people for a Palestinian state," he said. Bush also had harsh words for Arafat, saying he has declined to confront or control terrorists. More than two months have passed and Arafat still hasn't clamped down on Palestinian terrorists. Sure, he's issued statements condemning terrorism, but those fault terrorism for causing bad PR for Palestinians. Despite Arafat's failures, Bush has decided to make still another concession--unless he unexpectedly cancels his speech announcing the statehood plan.