Face-Off on the High Seas

By George Russell

The solemn scene has been played out time and time again over the centuries--the great warships weighing anchor and heading out to sea on the morning tide. Nearby, as a reminder of the glorious past, was the Victory, the flagship of Lord Nelson when he sailed out through the same channel to win his great victory over the French and Spanish at Trafalgar in 1805. And, as always, the Britons gathered at Portsmouth Harbor last week to watch the naval departure were swept with deep feelings of national pride and a sense of foreboding about an uncertain future. The crowd was largely silent at first, but the cheers began as the aircraft carriers Invincible and Hermes moved past. The spectators, some of whom had been weeping only moments before, shouted encouragement across the water, waved Union Jacks and held placards reading GOOD LUCK and UK-OK.

Sailors in their blue-and-white dress uniforms lined up on deck in the traditional farewell. Spectators in boats accompanying the Invincible searched for a glimpse of Prince Andrew, 22, second in line to the throne and a helicopter pilot. The decks of the Invincible and the Hermes were jammed with munitions and the latest in British aerial fighting gear: vertical-takeoff Harrier attack aircraft and Sea King helicopters. Some 2,000 Royal Marines, the nucleus of an assault group, were also aboard the ships. Once out on the Atlantic, the carriers were joined by destroyers, frigates and support vessels until the fleet numbered close to 30. Running at night under blackout conditions, the largest British military armada since World War II began its long, slow voyage toward the South Atlantic. Far ahead of surface ships, nuclear-powered attack submarines already prowled the waters around the fleet's destination, the barren and windswept Falkland Islands.

Meanwhile, about 7,800 miles from Portsmouth, the Argentines braced to defend the British territory that they had invaded on April 2. C-130 Hercules military transports marked with the sky-blue and white colors of Argentina roared back and forth between the tiny island capital of Port Stanley and their mainland base, 600 miles away. The aircraft brought food, ammunition, trucks and members of the Argentine 9th Infantry Brigade to bolster the 2,500-man invasion force. In Buenos Aires, the government made further preparations for battle. Some 80,000 Argentines who had just finished their year of compulsory military service were ordered back into uniform.

Day by day, the British increased the pressure on the Argentines to get off the islands they had so precipitously seized. On Wednesday evening, Defense Secretary John Nott warned that the Royal Navy would sink any Argentine vessel, whether warship or merchantman, that was within 200 miles of the islands after midnight Sunday. "We will shoot first," said Nott. "We will sink them, certainly within the 200-mile limit." By week's end at least four British nuclear-powered submarines, led by H.M.S. Superb, were believed to be in position to enforce the blockade. The Argentines in turn declared that they were ready to sink any hostile British ship that came within 200 miles of the mainland or the conquered islands, and vowed that they would defend their hold on the Falklands.

Incredible as it seemed in the age of nuclear superpowers, Britain, the onetime mistress of the seas, hovered on the brink of an old-fashioned territorial war with faraway Argentina. Even the immediate issue behind the threatened conflict seemed anachronistic: sovereign control over a scattering of rocky, inhospitable dots on the map of the South Atlantic (see following story). The two potential combatants, however, saw the matter quite differently. For the Argentines, it was a question of reclaiming by military means territory that they argue had been taken from them in the same fashion nearly 150 years earlier. For the outraged British, the issue was a matter of deep principle: the sovereign territory of Great Britain had been invaded; 1,800 British subjects had been seized, an act of unprovoked aggression that thwarted the self-determination of the islands' residents, who cling determinedly to their ties to the mother country.

The implications of the bizarre confrontation went far beyond who should rule the Falklands. The futures of two decidedly different governments and their leaders were at stake: Britain's Conservative Prime Minister Margaret Thatcher and Argentina's President Leopoldo Fortunato Galtieri, head of his country's ruling junta. If either government were forced into a humiliating backdown, it undoubtedly would fall. The crisis had already cost Britain the services of its ablest Cabinet minister, indeed one of the world's best diplomats, Foreign Secretary Lord Carrington, who resigned last week after taking the main responsibility for not having prevented the Argentine action. Said Carrington in his letter of resignation: "The invasion of the Falkland Islands has been a humiliating affront to this country." How the emergency was resolved thus would have consequences for NATO, as well as for Latin America, whose countries anxiously waited to see if the U.S. would countenance, in any way, the use of force in the area.

Caught in the middle was the Reagan Administration, which was trying to maintain ties with its oldest and staunchest ally in Western Europe without damaging its budding friendship with Argentina, a country that the U.S. hopes, without much evidence to date, will help its campaign to oppose the spread of Communism in the Western Hemisphere. Reagan's public ambivalence at first created the unfortunate impression that the U.S. could not choose between Britain and the country that not only was the aggressor but had also had a bloody history of human rights violations.

To try to resolve the crisis over the Falklands, President Reagan sent Secretary of State Alexander Haig winging off to London and Buenos Aires in search of a peaceful solution. After discussions in London, Haig said he was "highly impressed by the firm determination of the British government." Next day in Buenos Aires, he spent a total of eleven hours in talks with President Galtieri and other Argentine officials. Early Sunday morning, in a sudden change of plans, Haig announced that he would return to London later that day with what an aide described as "some specific ideas."

The looming war was one that neither Britain nor Argentina wanted or could afford, a factor that offered some hope that all-out fighting could be prevented. Late in the week, there had been a sign of encouragement when Argentine Foreign Minister Nicanor Costa Mendez said that while his government was ready to repel any attack, he was "very optimistic" that a peaceful solution could be found. The White House was also cautiously optimistic. Said one Reagan aide: "I think there are reasonable prospects for a settlement."

Although there were reports that the U.S. had warned the British about the invasion ten days before the landing, British officials insist--and their U.S. counterparts agree--that they became convinced of the reality of the impending attack only on March 31, just two days before the assault, when there were no British forces in striking distance to resist. To confuse the issue slightly, Thatcher later admitted obliquely that a British submarine was "about" in the waters, but it could hardly have prevented the invasion.

As the Falklands' British Governor, Rex Hunt, recounted the story of the actual fighting, a tiny force of Royal Marines battled determinedly and well for several hours against an overwhelming force of Argentine troops who stormed the tiny (pop. 1,050) settlement of Port Stanley. The marines finally laid down their arms at Hunt's command. He disputed Argentine claims that the assault resulted in only one Argentine dead and two wounded; at least five and possibly 15 invaders were killed, Hunt said, and 17 were wounded in the fighting.

Hunt painted a vivid picture of his own quixotic departure from the Falklands. He refused to shake hands with the Argentine general commanding the invaders, an attitude, his adversary said, that he found "very ungentlemanly." Retorted Hunt: "I think it very uncivilized to invade British territory. You are here illegally." Donning his ceremonial uniform and plumed hat, Hunt was then chauffeured to the Port Stanley airport in his official limousine (the same Austin model used as a London taxicab), with a small Union Jack fluttering defiantly from the hood. Said Hunt in London: "I am still Governor. We must do what we can to go to the rescue of the Falkland Islanders."

The day after the attack, as the Argentines launched a mopping-up operation against 22 marines on the island of South Georgia, the full storm of recrimination broke over the Thatcher government. In the first emergency weekend sitting of Parliament since the Suez Canal crisis of 1956, both the opposition Labor Party and even many Conservative backbenchers called for the resignation of Foreign Secretary Carrington, Defense Secretary Nott, the man ultimately responsible for British military preparedness, and of Thatcher herself.

Laborites scathingly declared that Britain had been humiliated by a "tinpot dictator" and a "two-bit Mussolini." Critics blamed the government for misjudging Argentine intentions and for failing to keep a British naval squadron "over the horizon" from the Falklands during times of tension, to discourage adventurism in Buenos Aires.

Lord Carrington took the criticism to heart. Prior to the emergency Commons session, he had told Thatcher of his intention to resign. The amiable and popular Foreign Secretary, who earned worldwide admiration for his 1979 negotiation of an end to the Rhodesian civil war, was unafraid of political criticism but felt strongly that his resignation was a matter of honor. Thatcher and Deputy Tory Leader William Whitelaw tried hard over the April 3 weekend to dissuade Carrington, whom Thatcher viewed as a valued ally. He was one of the few members of the Cabinet who could exercise restraint over the headstrong Prime Minister. He once had the self-confidence to tell her, as she got ready for an important meeting with a touchy foreign leader, "Don't say anything for the first 30 minutes." Carrington turned down a face-saving ploy suggested by Whitelaw and Thatcher: the Foreign Secretary would offer his resignation, she would refuse to accept it, and he would then withdraw the proposal. Thus he would have done the honorable thing, but his skills would have been retained.

Thatcher's choice of a successor for Carrington reflected her own weakened position within the Conservative Party as a result of the Falklands invasion. He was Francis Pym, 60, the man considered to be Thatcher's most serious rival for the party's leadership and a critic, however cautious, of her stringent economic policies. Wealthy, Eton- and Cambridge-educated and a descendant of the famed Puritan leader of the House of Commons during the 17th century English civil war, Pym had hoped for the Foreign Secretary post after the Conservative election victory of May 1979. Instead he became Defense Secretary. In January 1981 Thatcher fired him from the job after Pym opposed her on military spending cuts to reduce the British budget deficit. Importantly, Pym had questioned the government's decision to cut back its conventional naval forces while modernizing its submarine-based nuclear deterrent.

As the British fleet set sail, Thatcher regained some of her customary fire. Her basic position was that Britain would not negotiate until the Argentines withdrew. "We have to recover those islands," she declared in a television interview. Evoking Queen Victoria's words from the "black week" of December 1899, when attacking British forces were being repulsed in the Boer War, she declaimed: "Failure? The possibilities do not exist. I'm not talking about failure. I am talking about supreme confidence in the British fleet, superlative troops, excellent equipment. We must use all our professionalism, our flair, every single bit of native cunning and all our equipment. We must go out calmly, quietly, to succeed."

In setting that course, Thatcher had overwhelming levels of public support. One British national public opinion poll showed 83% in favor of regaining the Falklands. Given the choice between force and diplomatic pressure to achieve that goal, 53% preferred the use force.

British strategy was designed to use a carefully calculated mixture of both. High government officials were sure that the Argentines would never withdraw their invasion force from the Falklands unless they were convinced that Britain was deadly serious about military retaliation. Accordingly, the government deliberately harshened its rhetoric, while using every other means at its disposal to bring diplomatic pressure on Argentina. Pym set the tone. "Britain does not appease dictators,' he told a solemn House of Commons. Pale and grave, Thatcher answered further opposition cries for her resignation with the tart retort: "No. Now is the time for strength and resolution."

There were few doubts of Thatcher's resolution, or of her determination to use Britain's still formidable strength on the high seas. As she spoke, the fleet was continuing to grow. In addition to the warships already under way, the government requisitioned at least three British Petroleum tankers to serve as fuel transports for the attack force, which eventually could include as many as ten civilian ships. The navy was drawing heavily on the little-known Royal Fleet Auxiliary, whose 24 ships belong to the British Defense Ministry but whose officers and crew are technically members of the British merchant marine. The Fleet Auxiliary excels at carrying out high-speed naval refueling operations at sea, even while zigzagging in the dark beside their "customers."

In the port of Southampton, the 45,000-ton, 1,600-passenger cruise ship Canberra was stripped of her luxury fittings, chandeliers and heavy curtains. Two helicopter landing pads were fitted onto the liner's decks, one of them across an empty swimming pool. Military rations, munitions, armored vehicles and other equipment were put aboard, and 2,000 marines and paratroopers filed up the gangways. Many members of the Canberra's crew volunteered to serve for the possibly hazardous South Atlantic duty; in addition, some 30 nurses were accompanying the troops; the Canberra might be used as a hospital ship.

As the British moved south, pilots of the Harrier attack aircraft began practicing combat missions and making wave-skimming flights to avoid radar detection. Pilots later plan to fire some of their weapons close to the carrier to accustom crews to the noise of combat. Marines conducted regular calisthenic-and weapons-training sessions on the carrier flight decks, and helicopter crews worked on their tricky approaches and landings. For relaxation, officers aboard the Invincible were shown a Walt Disney wildlife film. Subject: the Falkland Islands. Prince Andrew joined in the laughter about the penguins.

The greatest weakness of the British task force is that it lacks airpower: the range of the Harriers is not much more than 100 miles. To help correct that flaw, the government has dispatched Nimrod reconnaissance aircraft armed with torpedoes and "smart," target-seeking bombs to Ascension Island, a British colony, some 3,500 miles from the Falklands. The Nimrods have a range of 5,755 miles and can be refueled in the air. In addition, C-130 Hercules military transports are flying into Ascension to be ready for use in the Falklands.

Beyond establishing a blockade, British battle strategy is top secret, but TIME has learned that a likely second phase of the British effort, if it came to war, would be the reoccupation of South Georgia Island, 800 miles from Port Stanley, and a blockade of Argentina's naval base at Comodoro Rivadavia. A third stage might be the seizing of Port Stanley itself by marines and paratroopers under air cover from the Harriers and Nimrods. But the British faced several major problems. The first is what U.S. experts were calling "sustainability"; resupplying troops and fleet if a blockade continued for several weeks. The common assumption was that supplies would be stocked at Ascension, but it was not certain that such stores would be available soon enough. Even then, the British faced the daunting prospect of maintaining a long supply line under conditions of war. Many military experts also question the ability of the British to retake the islands with the number of troops that the fleet was carrying to the South Atlantic. The attackers would face an Argentine air force that includes 21 French-built Mirage III interceptors and 68 U.S.-made A-4P attack bombers; the British Harriers are more suitable for ground support than for air combat.

While world attention focused mainly on the British military buildup, the Argentines were also mobilizing for war. In planning their strike at the Falklands, President Galtieri and his junta may have underestimated the fury of the British reaction, but they had undoubtedly rallied their own population behind them. And perhaps just in time: it is generally believed that the Falklands invasion was primarily a political move to reduce Argentine civilian unrest, which has reached serious proportions. After six years of military dictatorship characterized at times by brutal repression, the country's potentially powerful labor unions had been rising in protest against chaotic economic conditions of triple-digit inflation and double-digit unemployment. Only two days before the invasion, Argentine security forces shot and wounded six demonstrators (one later died) and arrested 2,000 others during the largest public protest since the military crackdown began in 1976. In the euphoria following the Falklands takeover, the government was able to release all 2,000 demonstrators and even invited one important union figure, who had been a leader of the demonstrations, to the Falklands to witness the swearing-in of the military governor of the newly proclaimed 23rd province of Argentina.

In the shaded parks and plazas of the capital, reports TIME Correspondent William McWhirter, Argentines were treating the growing crisis like a holiday. "Vendors sell blue-and-white bunting, the banners and streamers of war that are more popular in the parks than balloons. Argentines are basking in their victory; the vast majority do not seem to know or care where events are leading them." As one Argentine journalist explained it: "All of us agree that the government manipulated the crisis and that Argentina is now internationally isolated, but this is not just a military question. The islands involve everyone."

In just that spirit, "thousands" of Argentines, claimed the government, volunteered to fight for their newly acquired territory. Lines at some military recruiting stations stretched for city blocks. Young Argentines reminded visitors that in the early 19th century their countrymen had repelled a British force that tried to invade Buenos Aires. Says one newly radicalized young patriot: "If Argentina defended its territory against Britain's superior power then, we can do it again."

The fact is that British power may no longer be all that superior compared with Argentina's. Although the Argentine navy is small (17 ships), the country has a 130,000-man regular army and a 19,500-man air force to back up the 9,000 soldiers equipped with armored vehicles and artillery who will be in place on the Falklands when the British fleet arrives about April 20. In addition, the army can call upon as many as 450,000 reservists. The training and skill of the military have improved considerably since the armed forces took power in 1976. Foreign military observers give the Argentines good marks in land, sea and air power, and in discipline and tactics. Says one intelligence specialist in Buenos Aires: "If the British really intend to try an assault on the Falklands, they had better go back and get a bigger stick."

Moreover, if the Argentines are attacked, they can probably count on more support, of at least the moral variety, than they have so far received from their Latin American neighbors. The Argentine generals were surprised and upset at the lack of backing they received at the United Nations Security Council immediately after their invasion, where they were condemned as aggressors. The situation would seem less clear-cut to other Latin American countries if the British started shooting in the South Atlantic. At least ten countries, including Brazil, Mexico and Venezuela, have expressed sympathy with Argentina's claim to the Falklands, even while most deplored their" neighbor's methods. British military action might make them close ranks with Argentina, although the other Latin nations are unlikely to join in any conflict.

Meanwhile, Britain too was looking for support from its allies, and finding it. At the urging of the Thatcher government, all ten members of the European Community announced an embargo against Argentina on arms and military spare parts. The Europeans also decided to impose a ban on all imports from Argentina (amounting to about $1.76 billion per year) effective this week. The British had already cut off all Argentine imports, restricted export credits and frozen Argentine assets worth about $1.5 billion. The ally upon whom Britain was counting the most, however, was the U.S. Said Sir Nicholas Henderson, Britain's Ambassador to Washington: "There is no doubt of the paramount influence of the U.S. After all, Argentina does not have very many friends in the world."

Prime Minister Thatcher had other good reasons to call for aid from the Reagan Administration. As both sides well knew, Britain has been the firmest ally of the U.S. throughout the 20th century. Whenever the U.S. has asked for similar kinds of help from its friends, Britain has given it, often at considerable cost. In recent years, the Thatcher government has joined in U.S.-sponsored trade sanctions against the Soviet Union for its invasion of Afghanistan, endorsed the U.S. call for a boycott of the 1980 Moscow Olympics for the same reason, and vociferously criticized the martial-law crackdown in Poland. Britain supported sanctions against Iran during the U.S. embassy hostage crisis, even though British diplomats privately believed that the measures would be ineffective. Thatcher has unswervingly backed the U.S. nuclear buildup to counter increased Soviet strategic forces and is a supporter of the controversial NATO policy to place additional intermediate-range nuclear missiles in Western Europe, including cruise missiles on British soil. Says a senior official in the British Foreign Office: "We gave you our unstinted support when you needed it and have been your loyalest global ally. If you cannot give us your strong support at a moment when British sovereign territory has been invaded, there is the possibility of grave damage being done to the alliance between our two countries."

The Reagan Administration was keenly aware of Britain's desires, yet its reaction was tentative and halting. The U.S. learned of the impending invasion only 48 hours in advance, through British rather than U.S. intelligence reports. (Subsequently, U.S. intelligence officials discovered that the Argentines had been planning the operation in strict secrecy for two months.) With the information came a British request for U.S. intercession to prevent the crisis. Secretary of State Haig immediately called in Argentine Ambassador to Washington Esteban Arpad Takacs and sent messages to Argentina's President Galtieri through the U.S. Ambassador in Buenos Aires, Harry Schlaudemann. When those advances were rejected, President Reagan was asked to intervene.

Reagan responded as soon as U.S. diplomats could provide him with proposals to discuss with General Galtieri. Less than a day after the British report, Reagan phoned the Argentine President. Speaking through translators, the two men talked for 50 minutes. Galtieri took up much of the time by giving Reagan a laborious lesson on the history of the Falkland Islands. Reagan offered to send a personal envoy of Galtieri's choice, including Vice President George Bush, to help prevent the invasion. The offer was rebuffed. What Reagan did not know was that even as he spoke to Galtieri, Argentine naval forces had been ordered to move on the Falklands.

The White House was chagrined by the failure of Reagan's mediation effort. That was soon followed by a most awkward revelation: on the evening of the very day the Argentines had successfully stormed Port Stanley, U.S. Ambassador to the U.N. Jeane Kirkpatrick had been the guest of honor at a dinner hosted by Argentine Ambassador Takacs, an extraordinary accident of timing by the Argentines, if it was an accident. With Kirkpatrick at the function was Deputy Secretary of State Walter J. Stoessel, the highest-ranking U.S. career diplomat. Trying to explain the embarrassment, the State Department said only that the affair had been scheduled long before the invasion. British Ambassador Henderson noted the attendance of Kirkpatrick and Stoessel at the dinner and declared sarcastically: "We are not thrilled."

President Reagan's early failure to prevent the invasion left White House aides reluctant to have further direct presidential involvement in the crisis. There was considerable concern that Reagan's image had been damaged when word was released that he had talked for as long as 50 minutes with Galtieri without having any effect.

The responsibility for dealing with the confrontation was taken up by Haig. Early last week the State Department asked Whitehall to arrange for an "invitation" for Haig to visit London. The Argentines also agreed to receive Haig. At a Monday press conference, President Reagan outlined the diplomatic dilemma created by the Falklands confrontation. Said Reagan: "It's a very difficult situation for the U.S. because we're friends with both of the countries engaged in this dispute."

Reagan's weak response reflected an Administration desire to go as easy as possible on the Argentines, although the U.S. had supported the U.N. resolution calling for Argentina to get out of the Falklands. Reversing Jimmy Carter's policy, which denied aid to Argentina because of its human rights violations, the Reagan Administration was trying to work closely with the junta. U.N. Ambassador Kirkpatrick had singled out the Argentine regime as an example of a "friendly authoritarian" government in the hemisphere that could help to provide a shield against encroaching Communism. U.S. cultivation of Argentina had become more intense since the acceleration of Marxist-led guerrilla warfare in Central America; the Argentines, for example, are thought to be actively involved in the formation of paramilitary groups dedicated to harassing the Marxist-dominated Sandinista government of Nicaragua.

Reagan's remark about being friends with both sides gave ammunition to those who criticize the Administration's priorities in balancing hemispheric anti-Communism against the need to maintain NATO unity. It also provided an opening for political extremists, including British Labor Party Radical Tony Benn. He told the House of Commons that "President Reagan is not only going to be neutral but bitterly hostile to any act of war against Argentina, because American power rests on the rotten military dictatorships of Latin America." The situation worsened when a U.S. Defense Department spokesman said: "The U.S. is right down the middle on the Falklands dispute."

The British understood the desire of the Administration to appear as neutral as possible as it tried to defuse the crisis, but Thatcher's government made it bluntly plain that it expected the U.S. to use its leverage to induce Argentina to remove its troops from the Falkland Islands. Meeting with Haig, British Ambassador Henderson said: "Our view, frankly, is that American interests are at stake as much as ours. If it's a question of overthrowing frontiers and sovereignty and territorial integrity by force in the American hemisphere, goodness knows where it could end." Henderson reminded Haig: "If U.S. territory were occupied or assaulted, as it has been, you wouldn't start negotiating until the military situation was restored. The U.S. did not sit down with Japan the day after Pearl Harbor." Henderson said later that the British were not asking for military assistance from the U.S., nor did they want U.S. intelligence reports. Said Henderson: "We have the capability to achieve our objective ourselves."

Haig also met with Argentine Foreign Minister Costa Mendez, who a day earlier had excoriated Britain for "colonialism" at a Washington meeting of the 28-member Organization of American States. (The O.A.S. has delicately postponed taking any action on the invasion issue until this week.) Costa Mendez also threatened to invoke the 1947 Treaty of Rio de Janeiro, which requires its Western Hemispheric signatories to help one another if attacked. The U.S. is a key signatory, but after 73 minutes with Haig, Costa Mendez sounded far less eager to test the theoretical limits of the inter-American mutual defense system. Instead, he welcomed the forthcoming visit of Haig to Buenos Aires.

Thatcher's formal invitation for Haig to come to Great Britain arrived the following day during a morning meeting at the White House of the National Security Planning Group (the inner circle of the National Security Council). The Falklands confrontation and Haig's possible role were the main topics of the 40-minute meeting. Said a White House aide: "What was being weighed was the likelihood of success. Would we come up emptyhanded? The conclusion was that nobody knew for sure whether this would be a success. But with both sides anxious for us to play a role, the issue was too important not to play a role." There was agreement with the British position that Haig should not be an official mediator, but act as a helpful go-between who will explore different proposals.

While there was no disagreement at the meeting about the idea of sending Haig abroad, there were differences of opinion over the tone that the U.S. should adopt during the mission. U.N. Ambassador Kirkpatrick, a guest at the session, argued strongly that the U.S. should respect the sensitivities of the nationalistic Argentines. Her repeated point: the U.S. must not allow the Falklands issue to undermine the American interest in building a common anti-Communist front among Latin Americans.

By the time Haig left Washington for London, the British government had announced its blockade. Its military purpose, Defense Secretary Nott told the Commons, was to "deny Argentine forces on the Falklands means of reinforcement and resupply from the mainland." But the announcement also had a political purpose: to convince Washington, as well as the Argentines, that the Thatcher government was in deadly earnest about recovering control of the islands.

Arriving at London's Heathrow Airport, Haig took pains to emphasize that he had come to listen. Said he: "I don't have any American-approved solution in my kit bag. The situation is very tense and very difficult." It was "too early to say" if there was a diplomatic solution to the crisis. Still, Haig showed his sympathy for his hosts by endorsing the U.N. Security Council resolution that called for Argentina to withdraw.

For 80 minutes Haig discussed the situation with Prime Minister Thatcher in her upstairs study, then retired to the dining room for a steak-and-potatoes working meal. In all, Haig spent more than five hours with the Prime Minister. Her message, according to a top British official: "Stop talking about American even-handedness and tell the junta to obey the Security Council resolution to withdraw its forces. Only after this happens will we be prepared to talk about the future of the islands." Added a senior member of the British Cabinet: "While we want a diplomatic solution, we are absolutely determined to bring about the unconditional removal of those troops even if we have to go to war." The British did make it clear, however, that once the Argentine troops departed, the Thatcher government would be willing to enter again into almost any kind of negotiations over the islands. As a senior British official put it: "No option would be excluded."

In Buenos Aires, Haig found the Argentines in a state of high excitement. His limousine moved slowly past upwards of 150,000 flag-waving onlookers as he drove to the presidential palace, the Casa Rosada, to see President Galtieri. The Argentine leader subsequently told a cheering crowd: "If the British want to come, let them come. We will take them on." He added that Argentina would "inflict punishment" on anyone who "dares to touch one meter of Argentine territory." But the discussions between Haig and the Argentines continued until late that evening. It was after midnight when Haig announced unexpectedly that he would return to London immediately for further talks with the British government. Asked if he had made progress in Buenos Aires, Haig replied tersely: "There's been a lot of work."

Whatever the outcome of the Falklands crisis, the dispute has already cost both nations dearly. The price to Argentina of its invasion of the Falklands is estimated at some $500 million to $600 million. That is close to the levels of the country's entire liquid foreign currency reserves, which have plummeted from $6.5 billion a year ago. In Britain, the price of the naval expedition is of course unknown. Indeed, Defense Secretary Nott told a cheering House of Commons that money did not matter. But the House was also warned by a senior Treasury official that the bills might well have to be paid by higher taxes and deeper cuts in the country's already austere public spending budget. One consequence: the London Stock Exchange was hit by near panic selling as the fleet set sail; the market lost $4.4 billion in a single day.

Such waste, and the danger of war, makes clear that the only logical resolution of the Falklands crisis is a negotiated settlement. One possible outcome for the islands is an agreement similar to that between the Chinese and the British that is known as the "Hong Kong solution." China claims sovereignty over the adjacent British colony of Hong Kong. The British no longer argue that point, but continue to administer the territory as though it were their own. The leases with the Chinese that are the basis of Britain's jurisdiction in Hong Kong expire on June 27, 1997. Whether or not the area will then revert completely to the Chinese depends upon negotiations that the British hope will start this year. Under these hazy conditions, life goes on, much as before.

If the Argentine troops leave the Falklands, the British have quietly and privately indicated that they would be willing to begin negotiations that would grant sovereignty over the islands to Argentina some time in the future. If London were allowed to administer the territory for a number of years, nothing would change in the lives of the inhabitants of the islands until Argentina could claim sovereignty, and even then the agreement might allow Britain to keep on running the area. But Prime Minister Thatcher this week also reaffirmed publicly that any Falklands settlement would have to be "acceptable to the islanders, the British Parliament and British people."

In 1981, the British and the Argentines came close to working out a Hong Kong-type solution for the Falklands, but the proposal was vetoed by the Falkland Islanders, who held Britain to its promise that it would respect their right of self-determination. Even if the British were able to come to a new agreement with Argentina, they probably would still face the problem of persuading a group of their countrymen to accept the fact that some day they--or their children, or their grandchildren--would be living in a corner of a distant land that was no longer Britain. But such discussions lie in the future. The immediate question is more direct: What will keep Great Britain and Argentina from going to war? --By George Russell. Reported by Bonnie Angela and Frank Melville/London and Gavin Scott/Buenos Aires

With reporting by Bonnie Angelo, Frank Melville, Gavin Scott

This file is automatically generated by a robot program, so viewer discretion is required.