THE meeting between President Bush and South Korean President Roh Tae Woo yesterday put the spotlight on an increasingly dangerous issue confronting Washington and Seoul: how to head off the danger of a nuclear-armed North Korea.Until now the United States has rejected overtures from Pyongyang for negotiations on a compromise that would take into account legitimate North Korean security concerns. While demanding that North Korea unilaterally give up its effort to develop a nuclear option, Washington has insisted on its own right to continue stationing nuclear weapons in the South. This unrealistic approach has produced a dangerous stalemate. Yet Pyongyang, faced with serious economic problems, is eager for a broad relaxation of tensions with Washington and Seoul involving mutual North-South reductions of conventional forces as well as a settlement of the nuclear issue. North Korea signed the nuclear nonproliferation treaty in 1985. But the refusal of Kim Il Sung's regime to conclude an inspection agreement with the International Atomic Energy Agency (IAEA), as required under the treaty, has aroused suspicions that it is stockpiling weapon-grade nuclear materials. The North has domestic reserves of natural uranium for its two reactors and is building what is believed to be a reprocessing plant for the separation of plutonium from spent uranium fuel. Intelligence estimates differ concerning when this plant will be completed. However, there is growing consensus that it is likely to be operational within three to five years, and that Pyongyang might well be able to deploy some form of nuclear weapon by 1996 or 1997. The North's terms for permitting inspection are clearly negotiable. Initially, Pyongyang said that it would not sign a safe-guards agreement unless the US first removed its nuclear weapons from South Korea. In August 1990, it hardened this position by adding an additional demand for agreement to assure the Democratic People's Republic of Korea against the use or threat of use of nuclear weapons. The reason for this change was that the removal of US nuclear weapons from the South, in itself, has little meaning. The US would still be free to keep nuclear weapons on nearby ships and submarines for use against the North. Nevertheless, as part of its new peace offensive, Pyongyang has soft-pedaled its demand for a non-use pledge and focuses once again on the removal of US nuclear weapons from the peninsula. More important, it has signaled its readiness for an important tactical concession that would make it easier for Washington to move its nuclear weapons offshore. THE American position is that the North is obliged to sign an inspection agreement under the nonproliferation treaty. Thus, no quid pro quo is in order. To meet this argument, Pyongyang is offering to delink the issue of the IAEA agreement and the American nuclear presence by making the first move. If Washington and Seoul will secretly pledge that US nuclear weapons will be removed at a later date, the North has indicated it will sign the IAEA agreement without their prior removal. Actual inspection visits by IAEA would begin after the US acts. Under this plan, the US would not have to alter its policy of "neither confirming nor denying the existence of nuclear weapons anywhere. South Korea would simply join in a pledge with the North barring the deployment of nuclear weapons in the peninsula and would offer to negotiate a mutually acceptable form of international inspection to verify observance of the pledge. While desirable as a first step, North Korea's acceptance of IAEA safeguards would not fully allay fears of its nuclear ambitions. The pending IAEA agreement would permit continued stockpiling of weapons-grade plutonium as long as the material remained open to IAEA inspection. To achieve a stable peace in Korea, therefore, the Bush administration should announce its readiness to discuss a comprehensive nuclear-free zone agreement under which the US, the Soviet Union, China, the two Koreas, and possibly J apan would pledge not to use nuclear weapons against either of the two Korean states, and not to deploy them in the peninsula. The US has understandably rejected the idea of a unilateral American non-use pledge because the North's two military allies, Moscow and Beijing, both have nuclear arsenals. But a multilateral nuclear-free-zone agreement would be in the American interest if it could be used to draw Pyongyang into more meaningful verification machinery than the IAEA safeguards. The North is eager to defuse the nuclear issue in order to clear the way for a pending reparations and economic-aid agreement with Japan linked to the normalization of relations. But Pyongyang feels cornered in a changing geopolitical landscape and is not likely to give up its nuclear option without meaningful quid pro quos. Apart from the shock of increasing Soviet and Chinese coziness with Seoul, Pyongyang believes with good reason that hardliners in the South are seeking to promote its economic collapse and eventual absorption - by forcing it to keep defense spending high. The North, with half the South's population, spends five times as much of its GNP on defense, thus starving its consumer industries. This is why it has been seeking large-scale mutual force reductions in the stalled North-South arms control negotiations . President Roh deserves credit for pushing a dialogue with the North more seriously than his predecessors. But the South's politically powerful armed forces, allied with its burgeoning defense industries, have so far blocked any negotiations on force reductions and want the American nuclear presence to continue. The US should press the South to pursue a more flexible arms-control posture in which concessions on force reductions are conditioned on North Korean readiness for mutual North-South pull-backs from forward positions along the 38th parallel. At the same time, the US should remove its nuclear weapons from the South and push for a six-power dialogue on a nuclear-free Korea. North Korea is already further down the road to nuclear weapons than Iraq was last August. Absent diplomatic breakthroughs now, putting the genie back in the bottle will become increasingly difficult in the years ahead, as the North's nuclear program progresses and as internal power struggles accompanying the last years of Kim Il Sung intensify.