T he Hamas victory in the Palestinian elections is not only a setback to the faltering peace efforts. It increases the possibility that a fledging Palestinian state will be designated as a state sponsor of terrorism and lose U.S. assistance and investment.

Hamas leaders have repeatedly called for the end of Israel and use terrorist attacks against civilians as a tactic to achieve that goal. Hamas is one of the more than 30 organizations the United States and other governments have designated as terrorist organizations because they deliberately target of civilians.

Should a Hamas-controlled government support terrorism in deed as well as rhetoric, a new Palestinian state should be declared a state sponsor of terrorism, lose foreign aid and face economic sanctions. Secretary of State Condoleezza Rice, European governments, Russia and the United Nations have said Hamas must renounce violence and accept Israel's right to exist to continue receiving assistance. But they plan on funding the Palestinian government of Mahmoud Abbas for up to three months, while Hamas tries to form a government.

Sanctions that await Hamas

State sponsors of terrorism face sanctions that include a ban on economic and military assistance; export controls over equipment that could be used for military or terrorist as well as civilian activities; and no tax credits for American individuals and firms doing business in the country -- which discourages investment.

The sanctions also require the United States to oppose loans from the World Bank and other international institutions.

The sanctions would further damage the already battered Gaza and West Bank economies. The United States provided about $400 million for Palestinian economic and infrastructure projects during the past year.

Although the secretary of state and the White House have flexibility in deciding whether a country sponsors terrorism, Congress has made its standards clear. Congressional guidelines in the Anti-Terrorism and Arms Export Amendments Act of 1989 said the criteria should include, but not be limited to, whether the country gives terrorists sanctuary from extradition or prosecution; arms, explosives and other lethal substances; logistical support; safe houses or headquarters; planning, training or other assistance for terrorism; direct or indirect financial backing.

Some observers speculate that once in government, Hamas officials might set aside bombing Israel and concentrate on building up social services neglected by the corrupt and inefficient Palestinian Authority. Medical clinics and educational facilities have been a major recruiting tool for Hamas.

But history shows terrorists repeatedly chose bombings over nation-building and remain on the list (including Iran, Syria, Libya, Sudan, North Korea and Cuba).

Congress takes hard line

Even if the White House eventually softens its stand, Congress would force the Bush administration to put the Palestinian state on the terrorism list or cut off aid on its own if Hamas-sponsored terrorist attacks resume. Congress included in the last foreign assistance appropriations bill a ban on foreign aid to the Palestinian Authority -- which the president can waive if it is deemed in the "national interest." If Hamas doesn't change its ways, Congress should deny the president such authority.

In the end, it will depend on the Palestinians themselves. Is the Hamas leadership more pragmatic about building up a new Palestinian state or more passionate about killing Israelis in the vain hope of destroying the Israeli state?

There is little cause for optimism, but sanctions might teach Palestinians the folly of that approach and the consequences of electing Hamas.

Michael Kraft, a Washington counterterrorism consultant, is a former senior adviser in the State Department Counterterrorism Office. Please e-mail letters to letters@detnews.com.