EDITORIAL : DON'T PREJUDGE NETANYAHU ISRAEL'S NEW PRIME MINISTER MIGHT CONFOUND HIS CRITICS.

NEARLY 20 years ago, the hard-line Likud Party defeated the more liberal Labor Party, and Israel found itself being led by a feisty prime minister who voiced hawkish views against Israel's Arab adversaries.

The year was 1977 and the new prime minister was Menahem Begin. He was a hard-liner who helped bring Israel into existence. And who ultimately set Israel on an historic course toward peace by meeting with Egypt's Anwar Sadat at Camp David.

Last week's election in Israel has similar overtones to the one in 1977. Likud's Benjamin Netanyahu won a razor-thin victory over Labor's Shimon Peres, who had held every major government post in Israel and helped start the peace effort with the Palestinians.

During the campaign, Netanyahu repeatedly voiced a more hawkish stance than the one taken by Peres and the ruling Labor Party. Netanyahu ruled out a Golan Heights pullback, vowed to block the creation of a Palestinian state and promised to enlarge Jewish settlements in the West Bank.

As a choice between visions of Israel's future and how to achieve peace, Netanyahu could draw no clearer line in the sand.

But Israel, as evidenced by the latest elections, is volatile politically. Until a series of suicide bombings by militant Islamic groups that killed dozens of Israelis in February and March, voters favored Peres over Netanyahu by nearly 20 points.

Peres had good reasons for feeling optimistic. Foreign investment in Israel tripled since the Labor-led government's peace initiatives with the Arab world began in 1993. Unemployment fell from more than 11 percent in 1992 to 5 percent today.

Israelis want peace. But they also want to ride buses without fear of being blown to bits, stand on street corners free of suicide car bombers and go to bed feeling secure.

Netanyahu has promised both peace with security. Immediately after being declared the winner, Netanyahu told Peres that he shared his hopes for peace and would do everything in his power to make them come true.

Netanyahu has an opportunity to confound his critics, just as Begin did. Indeed, it might be easier for Netanyahu to be more conciliatory than Peres, since his credentials on security issues are unblemished.

Western leaders, including President Clinton, should pay attention to history. They would be well-advised not to sell Netanyahu short simply because his politics are less to their liking that Peres'. Israeli's new prime minister just might be capable of making some positive - and surprising - contributions to the cause of peace in the Middle East.