HOW can two groups of talented, hard-working people who have been locked into hostility for centuries ever build a stable peace? With Arabs and Israelis sitting down for their second round of direct talks, this is an important question.The best answer comes from Western Europe. Who would have thought, 100 years ago, or 50 years ago, that the French and Germans would one day be jointly pioneering efforts to build a Europe-wide political unity? Yet that is where they are, and the way they have gotten there provides helpful lessons for Arabs and Israelis. The first time the French and Germans tried to make peace this century, after World War I, things did not work out well. The victors, including the French, were determined to squeeze reparations out of the defeated Germans. German bitterness grew, incubating a Hitler, with horrendous consequences for all. Second time around, the peace was better planned. With the United States providing much-needed capital, the energies of French and Germans were turned to reconstruction. A visionary Frenchman called Jean Monnet worked to win support for the idea of economic cooperation between the former foes. By 1952, his efforts bore fruit. In two linked and strategically vital sectors, France and Germany joined with other neighbors to form the European Coal and Steel Community. The areas of cooperation multiplied, leading to the founding of the European Economic Community a few years later. Within the EC, France and Germany have tight links. Jean Monnet, where are you now? George Bush and US Secretary of State James Baker have done a wonderful job bringing Israelis, Palestinians, and other Arabs to the negotiating table. They have done well to spell out that Arabs and Israelis should also talk about arms control and economic cooperation. Now what is needed is to identify the first vital areas in which the sinews of economic cooperation can be developed. Here are some "strategic" areas where integration efforts could start: * Water. Hundreds of studies have been produced over the years, showing how cooperation in water could benefit all peoples of the eastern Mediterranean. What has not been pursued are the political discussions of how such cooperation would operate. Who would join a Mideast Water Authority? How would decisions be made? Who would finance the work needed, for example, to pump Turkish water down to Israel, Jordan, and the occupied areas? * Oil. A glance at a map from 50 years ago shows an Arab-Jewish economy much more integrated than today's. Oil pipelines came from the Arabian heartland to Mediterranean terminals at Haifa and two locations in Lebanon. That kind of integration could be built again, encompassing not only pipelines but also refineries, petrochemicals, and other downstream operations. How might a Mideast Oil Community function? How large might the benefits become? * Transportation. All the countries on the Arab-Israeli front-line are heavily dependent on international trade. But a glance at the region's transportation net shows how ill-suited it is for even present needs. The region needs a major investment in north-south highways and rail lines - how about a mag-lev line? It needs up-to-the-minute ports. (Gaza had an important port, attached to a duty-free zone, before 1967. Redeveloping that port could make a major contribution to Palestinian stability and regio nal growth.) Again, who should join a Mideast Transport Community? How would it work? * Tourism. This one is linked naturally to transport, and it is one area in which most parties to the Arab-Israeli conflict already recognize that cooperation pays dividends. A package tour that takes you to all the region's Crusader castles? A tour of Bible, Torah, or Koran sites? The possibilities are endless. What is needed is large-scale investment in hotels and good roads. Oh yes, and peace. These suggestions are not pie in the sky. In 1942, would the French have happily thought of future cooperation with Germany? Maybe not, but they rapidly showed the wisdom to support the idea, and it has proven a wise decision. We need a similar vision, and a similar effort to spell out the concrete benefits of peace, for the peoples of the Middle East. The Bush administration should ask Arab and Israeli negotiators: Which area of economic cooperation would they like to start with? There are, it turns out, plenty of options. * Helena Cobban does research and writes on foreign affairs for Search for Common Ground in Washington. The views expressed in her columns are her own.