The war in Iraq is now entering its fourth year and the US is far from being able to declare victory, or even define an exit strategy. The carnage is appalling. On the home front President George W. Bush grows weaker, while around the world the perception of diminished American power encourages animosity from Venezuela to Iran to North Korea. Israelis breathed a sigh of relief three years ago when America removed the Iraqi threat. After all, Tel Aviv had come under Scud barrages in the first Gulf War, and Saddam Hussein had championed suicide bombers in the current conflict with the Palestinians. Many in Israel, while somewhat skeptical, had genuinely hoped America could help transform Iraq into the region's second democracy. Plainly, things have gone very badly and a reappraisal of US policy is urgently needed. The Bush administration may deny that Iraqis are now fighting a bloody civil war, but the reality is that they are not only fighting Americans - whom they see as occupiers - but also each other. America has sought to maintain the territorial integrity of Iraq, but that country was an artificial construct of post-World War I British diplomacy - a reality that can no longer be ignored. Iraq is a failed state, and in its agony it is dragging America down with it. IT IS AN Israeli strategic interest that the US neither falter nor be seen to fail. But what advice can we Israelis offer to a friend in need? America needs an alternative policy that will ensure a legacy of peace and stability in Iraq, leaving behind democratic institutions while enabling a timely and honorable exit for allied troops. This goal may not be attainable if Iraq is to be maintained by force as a single unified republic. In fact, Iraq has for the past few years been de-facto partitioned between an increasingly autonomous and flourishing Kurdistan and the Arab (Sunni and Shi'ite) parts of the country. TO SEEK a solution one must look outside the Middle East. The American diplomatic precedent to focus on is not Vietnam, but the Balkans. One of the achievements of American diplomacy a decade ago was the determined effort to reach agreement between three of the different factions that made up the former Yugoslavia. It was at Dayton, Ohio, in 1995 that an agreement between Serbs, Croats and Bosnians was reached after other parts of Yugoslavia, such as Slovenia, had already broken away from the grip of Belgrade. For 10 years now peace has largely reigned in the Balkans (barring isolated problems such as Kosovo). Tourists are returning to Dubrovnik, Slovenia and even Belgrade, while churches and mosques, destroyed in bitter fighting, are being rebuilt. The European Union is progressing toward accepting the former Yugoslav provinces, now - most of them - independent countries, into the European family of nations. All this has been made possible by skilled diplomats appointed by the European Union, in coordination with the UN and backed by the armed might of NATO. I'm not suggesting that the Yugoslav formula is precisely applicable to Iraq. But it certainly offers guidelines that could lead to an agreed solution. WHAT AMERICA and the UN should work for, then, is the establishment of a contact group of nations neighboring Iraq. With the encouragement of those governments the warring parties might be induced to seek a modus vivendi, leading to an agreement that could result in a confederation that embraced Shi'ites, Sunnis and Kurds. There could be agreed spheres of influence: the Kurds perhaps under a Turkish protectorate, the Shi'ites with a formalized relationship to Teheran. Iran and America are already discussing the future of Iraq, the Sunnis reunited with their Arab kinsmen through a strengthened relationship with Jordan. All of this would be with the backing of the UN, possibly facilitated by placing UN troops from neutral states to keep the peace. The city of Baghdad, with its mixed population, could become the confederal capital, with its own elected municipal administration. A suitable site would have to be found to be the capital of the new Sunni state. PERHAPS something could also be learned from the old League of Nations Charter and its mandates' provisions relating to helping new states evolve toward stability and democracy. Naturally there would have to be clear agreement on oil and revenues, as well as on water rights upstream and downstream. Other contentious problems such as Kirkuk would require detailed negotiations. For an agreement to work, it would have to be seen by all parties as a win-win solution: â€¢ The Iraqi Kurds would maintain their newly-won freedom, the Shi'ites would regain theirs, while the Sunnis would be rehabilitated, and, like the Serbs in Yugoslavia, learn to accept a new role in history. â€¢ The Jordanians would emerge as a major, peaceful and stabilizing Arab force in the area. The Saudis and the Gulf Co-operation Council, and with them the entire Sunni Arab League, would eventually learn to accept the new situation no less than the Syrians, while Iran would be recognized as a regional power, thus possibly lessening tensions in the region. Turkey could safeguard its Kurdish flank. The current Kurdish unrest in Turkey underlines Turkey's need for some sort of control of the Kurdish hinterland, which lies in Iraq. The Kurds of Iraq for their part need their ties with Turkey for commercial reasons (they sell oil to Turkey) and Istanbul has, I'm told, a huge Kurdish population. Turkey would probably want to have a say in what goes on in an autonomous Kurdistan within a confederated Iraq. Turkey does not want to see a completely independent Iraqi Kurdistan that might have irredentist claims on hunks of southeastern Turkey. The sort of solution that I am advocating might just square the circle. Added to which is Turkish awareness of EU scrutiny regarding Turkey's treatment of its own Kurds, which in turn influences Turkish chances of integration into the EU itself. Turkey does not relish the thought of having a strong Arab neighbor on her southern border, and would probably prefer a confederal - and weakened - Iraq to a country reunited under a radical Shi'ite leadership; which is what present US policy just might lead to. SO IF a confederal arrangement could be made to work it would contribute to a new and peaceful era. The oil of Iraq would continue to flow and so help bring down the price in world markets, while, closer to Israel, the Palestinians would finally realize that partition is the name of the game and that they - particularly Hamas - will never be able to overrun the State of Israel, but must learn, like the Iraqi Sunnis and the Yugoslav Serbs, to respect the rights of their neighbors. Is this plan feasible? Probably not until President Bush, whose terms expires in 2009, leaves the scene. Meanwhile, the good news is that Congress has established a bipartisan team of experts to reassess the entire Iraqi situation. With patience and skill it is not too late to partition Iraq and establish a confederal state in its place. It may be the only way out of the deadlock. The writer is a former diplomat, who worked on the Iraqi desk in the Ministry of Foreign Affairs in Jerusalem.