By Robert A. Pastor
                            Special to CNN Interactive

                  (CNN) -- The evolution of U.S. leadership in the world can be seen in its
                  relationship to the Panama Canal at the dawn of the 20th century and at its dusk.

                  America's construction of the canal in 1904-14 was one of the century's great
                  technological feats, one that Europeans tried but failed to do. On the last day
                  of the century, the United States will officially transfer to Panama responsibility
                  for the operation, administration and defense of the canal.

                  If the canal's construction symbolized the arrival on the world stage of a new
                  power, the United States, the transfer demonstrates that America's real
                  source of strength lies in its ability to adapt to a changing world.

                  At the beginning, the United States needed to control the canal to secure it; at the end,
                  we understand that the best defense of the canal required that we transform a resentful
                  neighbor into a partner.

                  With the help of Panamanian, Caribbean and Chinese labor, Americans built a canal
                  through the middle of Panama. We protected it with a 10-mile wide Canal Zone.
                  During the two world wars, the canal was a vital strategic artery for the United States
                  and our allies. By the Korean War, however, the canal's width could not accommodate
                  the huge aircraft carriers that had become the centerpieces of our fleets in both oceans.
                  Still, the canal remains very important economically as a transportation route.

                  Panama's pride eventually became resentment

                  The Panamanians were proud of their greatest resource but increasingly
                  resentful over what they viewed as a colonial presence that divided their
                  country in half. In 1964, a fight over a flag in the Canal Zone between
                  Panamanian and American students left 23 Panamanians and four U.S.
                  Marines dead. Panama insisted on new treaties, and most Latin American
                  leaders supported them. The talks began in 1964 and concluded in 1977
                  with two new treaties.

                  The Panama Canal Treaty called for the end of the Canal Zone in 1979 and the
                  gradual transfer of responsibility for the canal to Panama to be completed on
                  December 31, 1999, with the withdrawal of U.S. troops and closure of bases.
                  Panama would be responsible for the canal's defense. The Treaty on the
                  Permanent Neutrality of the canal, however, gave the United States the right
                  to defend the canal, preferably in support of Panama, but if necessary and under
                  extreme circumstances, by itself.

                  The debate on the treaties was intense and politically controversial. Many
                  felt a sentimental attachment to this great achievement. One senator joked
                  that "we should keep it because we stole it, fair and square."

                  President Jimmy Carter, with the support of the Joint Chiefs of Staff,
                  Republican Senate Minority Leader Howard Baker, former President
                  Gerald Ford and Secretary of State Henry Kissinger, argued that the 1903
                  treaties actually endangered the canal by enraging Panamanian and Latin
                  American nationalism. The best defense of the canal, they said, would be to
                  become a partner with Panama. The treaties passed by a single vote in the
                  Senate.

                  Panama has a better idea

                  The United States operated the canal as a model of state socialism. Panama
                  has a better idea. It will do a good job operating the canal, and it is
                  privatizing the ports and inviting foreign investors to build hotels, industrial
                  parks, eco-tourism, ship repair facilities and private housing.

                  One of the largest shipping and container operators in the world, a Hong
                  Kong firm called Hutchison-Whampoa, bid successfully to manage two
                  ports. Some conjure up phantoms of Chinese Communists using Hutchison
                  to threaten the canal, but China does not have the capability to seize Taiwan --
                  just 90 miles off-shore -- let alone a canal that is 10,000 miles away. Furthermore,
                  Hutchison has a stake in promoting the canal, not harming it.

                  More importantly, Panama has no intention to trade away its new
                  independence, and the United States has all the rights and the power needed
                  to defend the canal.

                  In the new century, the continued ability of the United States to lead will
                  depend on the partnerships we forge around the world. The best place to
                  start is with our friends in Panama. We will demonstrate our greatness twice
                  if we exhibit as much pride in transferring the canal at the end of the century
                  as we did in building it at the beginning.

                    Robert A. Pastor, professor of political science at Emory University in Atlanta, is the
                   editor of "A Century's Journey: How the Great Powers Shape the World" (Basic Books,
                   1999). He was director of Latin American Affairs on the National Security Council when
                               the canal treaties were negotiated and ratified.