DESPITE the rhetoric and confrontation that mark the current conferences on Middle East peace, the potholes in the long and winding road to solutions can be avoided.Just before the Madrid conference in November, unofficial representatives of the Arab states, the Palestine Liberation Organization (PLO), and Israel met in Moscow and joined in a simulation and analysis of the peace process at a meeting organized by the University of California's Institute on Global Conflict and Cooperation and the Soviet Academy of Science's Institute on the United States and Canada. The purpose was to look beyond the opening statements to find the next steps in effective negotiations. These proposals from the Moscow meeting are relevant to the unfolding peace process. * The parties should establish ground rules lest hard-line positions and tactics be mistaken for general purposes and tones. An appropriate opening declaration would indicate an intention to negotiate continuously and in good faith, to seek peaceful resolution of conflicts and move toward peaceful relations, and to pursue working group meetings between public plenary sessions. Such a declaration would not prevent tactical manipulations, including delays and walkouts, but it would put them in the context of a committed search for solutions. * In the search for a comprehensive peace, the key will be a continuation of the Kissinger-Carter step-by-step process, minus natural "breaking points" where a step could be frozen. Stages, like the phases of the Sinai withdrawal between 1974 and 1979, must be fluid and designed to "fall forward," leading to the next step and eventually to a stable settlement. Preliminary stages should include an agenda for negotiating the next phase. * One of any negotiator's biggest conundrums is when to handle "The Big Ones," the major problems with no obvious solution. Resolved early, they could smooth the way for agreement on other issues; resolved late, they would allow for lesser agreements to build precedents, atmosphere, and stakes in completing the agreement. The latter logic is more persuasive: The biggest problems should be pushed down the agenda for later discussion. These include the status of the PLO, the permanent status of the West Ba nk and Gaza, and the question of Jerusalem. * The question of settlements and the danger of an open-ended autonomy could lead to an early impasse in the Israeli-Jordanian/ Palestinian bilateral talks. If the Israeli government continues to refuse to halt settlements in exchange for any available Arab commitment, an alternative could be found in the revival of an idea mooted but not adopted in the post-Camp David discussions - that of an Israeli-Palestinian joint commission which would pass on any use of public lands in the West Bank, whether by Arabs or Israelis. If this is not acceptable, an Israeli declaration that it would review its refusal to halt settlements if progress were made in the negotiat ions after an appropriate time - 30, 60, or 90 days - would be another alternative. Similarly, a reaffirmation of the Camp David timetable for the West Bank and Gaza - negotiations or permanent status within three years after elections, permanent status in five years - would help deal with the problem of open-endedness. * Sources of early impasse in Israeli-Syrian and Lebanese bilateral talks include questions of Israeli withdrawal and ultimate intentions. These can be dealt with by constituting two Israeli-Syrian subcommittees, one to deal with short-term questions of security and the other long-term questions of peace. The first would negotiate a "Golan II" withdrawal, based on tradeoffs involving boundaries, settlements, military positions, and verbal transfer of sovereignty. The second committee would consider condi tions for "Golan III," or a permanent status, as well as Syrian discriminations against Israelis, freedom of migration, and security in southern Lebanon. * The role of the two superpower chairs is critical but misperceived. Both sides expect to have the luxury of being rescued from a deadlock by the chairs - especially the US, upon whom the blame for an imposed solution can then be heaped. There is little understanding that the US has started out with no plan of its own, other than simply keeping the parties locked in confrontation until they work their own way out. Yet it will be tempting for the conciliator, growing impatient with stalemate, to act as a mediator or even arbitrator. If it does so, it still must leave the parties with the impression that the stalemate-breaking ideas came from them.