Iraq's tentative waving this week of an olive branch toward Iran is a small step which deserves encouragement. But its offer of a one-week moratorium on bombing needs to be looked at realistically: The path toward a lasting peace in this three-year war is long and rocky.

Nevertheless, neighboring states and international organizations should use this occasion to try once again to persuade Iran, which now has the upper hand, to set more reasonable terms for peace and negotiate toward that end.

It is important to keep the war from spreading, as it had begun to in recent weeks with bombing and shelling of civilian areas by both sides. Both nations need to rebuild their battered economies. And if there were major escalation, or if Iran were to impede shipping in the Strait of Hormuz, there could be an interruption in the flow of a substantial portion of Middle East oil bound for Japan and other Asian nations.

The Iraqi offer is not so much a gesture of benevolence as a measure of the desperation that nation now feels. It should be remembered that Iraq was the chief protagonist in the early days of the war; purchased French jets capable of firing advanced missiles; and recently initiated the bombing of Iranian population centers. Nevertheless, it is losing: The war - initially fought on Iranian soil - now is being conducted in Iraqi territory, with the ground forces of more populous Iran having mounted a sizable offensive in the north.

Iraq's cash and foreign reserves have been reduced: The conflict has cut deeply into its oil exports and, hence, the flow of cash into the country. From a wealthy nation Iraq has been economically drained to the point that it is being supported now by several neighboring Arab states: One reason for the olive branch is to show them it is willing to settle the hostilities and thus hold out the hope that their bankrolling of Iraq may one day end.

Iraq has tried a similar peace offer before, declaring that it was evacuating all Iranian territory it occupied. But Iran, realizing it was gaining superiority, has refused to end the conflict unless Iraq agreed to several conditions that it found intolerable, including the overthrow of its President, Saddam Hussein, and payment of huge reparations.

Whether Iran, now more firmly in the driver's seat, is inclined to grasp this proffered olive branch seems doubtful. Further, several groups of nations, including the UN and Islamic organizations, have tried without success to get Iran to settle. Still, they should try again: Any opportunity to move toward the ending of a war is too important to be missed.

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