I spent a few days in Bilbao a year or so ago and found the Basques more optimistic than ever before about peace and prosperity in their little nub of Spain. It was easy to share that optimism. Not only did the glorious Guggenheim Museum of Frank Gehry now hover over a once-nondescript city. But a truce declared by ETA, the murderous Basque separatist movement, was holding. For months afterward, in fact, I collected stories off the website of El Pais, Spain's most influential newspaper, so that I would have enough background to write something thoughtful when the time came to celebrate the end of the long epoch of mindless Basque terror. But ETA, which had not killed anyone for a year and a half, proclaimed the end of its truce in November. Since then, ETA has assassinated a general, a politician, and a policeman, and the atmosphere is once again heavy with recrimination and uncertainty.

The Basque problem of Spain is both depressing and infuriating. A little more than 2 million people, not all Basques, live in the three provinces that make up the Basque region. A people in the Pyrenees mountains enjoying some autonomy during the Middle Ages, the Basques originally spoke a language, euskera, that has no Latin roots and thus bears no relation to Spanish. That means that they either came to Iberia from far away or, as is more likely, descend from Iberian mountain folk who managed to evade the Roman conquerors. Their nationalism was revived during the romantic decades of the 19th century when ethnic leaders stirred nationalist feelings among minorities throughout Europe.

The Basques were served poorly, however, by their 19th century patron saint Sabino Arana. Wielding a racist standard that crippled Basque nationalism in the long run. Arana preached that the Basques must not soil their language by teaching it to outsiders and must not mongrelize their race by marrying others. When other Spaniards emigrated to the Basque region early in the 20th century, attracted by the industrial might of Bilbao and other towns, the Basques shunned them and refused to teach them euskera. The influx of other Spaniards became so great and their grasp of euskera so weak that Spanish took over as the dominant language of the large Basque towns. The 40-year regime of the fascist dictator Francisco Franco weakened use of the language even more. The Basques fought Franco bitterly during the Civil War, and it was no accident that he unleashed the Nazi German planes under his command against the traditional Basque town of Guernica - a terrible destruction immortalized by Pablo Picasso's painting. Afterwards the victorious Franco used the brutal power of his government to try to wipe out all vestiges of cultural nationalism in the Basque areas. The humiliation and desperation of the Basques bred violence.

In 1973, a Basque terrorist organization called ETA - from the initials in euskera of the slogan Basque Homeland and Freedom - assassinated Franco's close associate, Prime Minister Luis Carrero Blanco, blasting his car skyward as it drove on a busy street in Madrid. That made the ETA assassins heroes to many democratic opponents of the Franco regime. Some even joked that the ETA bomb had turned Carrero Blanco into Spain's first astronaut.

But, after Franco died and Spain achieved its remarkable transition to democracy, the ETA killings did not stop. To ultra nationalist Basques, Madrid was still the oppressor no matter whether a fascist or a democrat ruled. There have been more than 800 ETA killings since the death of Franco. Moderate Basques, perhaps hoping that a little terror might frighten Madrid into granting the Basques ever more autonomy, were slow to condemn the killings. And a sizeable number of more radical Basques openly supported ETA. Herri Batasuna, the party that acts as the political wing of ETA, won almost 18% of the vote in the last regional election.

Yet a mood of cautious optimism had infused the area by the middle of last year, powered by several hopeful signals. The first came in late 1998 when Herri Batasuna joined the Basque Nationalist Party, the largest party in the region, and other Basque parties in signing what is called the Lizarra Declaration. After noting the steps taken toward peace in Northern Ireland, the declaration called for preliminary all-party talks in the Basque region and then, after "guns were silent," serious negotiations toward peace. All issues would be considered including "political sovereignty." Although Spain never convened all-party talks like those of Northern Ireland, there were some secret talks between the Spanish government and ETA, and ETA did silence its guns for the end of 1998 and most of 1999.

It's probably hard for outsiders to understand, but the opening of the Guggenheim lifted spirits enormously. Some Basque critics harped on the expense: Construction cost the Basque regional government $100 million. But it has proved a wise investment. Foreign newspapers are now associating Bilbao far more with Frank Gehry than ETA. Three times as many visitors came to the museum in 1998, its first full year, than Guggenheim officials had anticipated. More than a million tourists added Bilbao to their itineraries just to visit the museum. The Guggenheim is now the second most popular museum in Spain, behind the Prado in Madrid.

On top of this, Norman Foster, the renowned British architect, designed wonderful steel-ribbed, glass caterpillar-like entrances to the new Bilbao subway system. Playfully known now as fosteritos, they look like heralds of the 21st century just the way Hector Guimard's Art Nouveau Paris Metro entrances once seemed to mark the new 20th century. The modernity of Gehry and Foster encourages Basques to look forward, not back.

I felt the optimism in an odd way during my last stay. I have visited the Basque region many times in the last 25 years and, for the first time, I sensed that young, educated Basques were not repeating hoary slogans about past injustices but were more concerned about future development. I had lunch one day with an official of the Basque Nationalist Party and two employees of the regional agency that promotes industrialization. We ate at Sabin-Etxea (the House of Sabino), the headquarters of the Basque Nationalist Party built on the site where Sabino Arana was born in the 19th century. The house was destroyed during the Franco era, and the Basques managed to salvage a balcony and a few stones, which are on display in the lobby of the modern building.

My hosts were determined to put a modern face on Basque nationalism. Mocking foolish ideas that outsiders had about the Basque region, they told me that an ignorant Russian professor had recently asserted that the Basques were not allowed by law to marry non-Basques. I remarked, perhaps a little mischievously, that the professor was guilty only of reading the teachings of Sabino Arana too closely; their guru, after all, had railed against intermarriage. "But that was a hundred years ago," one of my Basque hosts protested. "That was another time." I could not help feeling heartened by this hint of heresy in the House of Sabino.

A broken truce, a museum, a few fosteritos and a hint of heresy - these are slim reeds on which to hang much optimism now. The atmosphere is worsened, moreover, by the rhetoric. Prime Minister José Maria Aznar, who humiliated his opposition with his decisive victory in the March 12 parliamentary elections, likes to strike a tough pose, unyielding to terrorists and separatists. The leaders of the Basque region, who surely understand the situation better than Aznar, still sound hesitant, even confusing, alternately condemning ETA while hoping, without any guarantee, that more and more concessions by Madrid to Basque autonomy will persuade ETA to give up the terror.

And yet I can't help feeling that the Basque region has turned a corner, that almost all Basques deplore the killings and want to look forward. Perhaps the time has come for outsiders - a commission of prominent American Basques, for example - to step in and mediate the way George Mitchell did in Northern Ireland. The time has surely come to wipe out this blot on Spain's remarkable transition from Franco's fascism to democracy.