ONCE UPON A TIME there was a small country that many Americans knew very well for many years. Thousands lived, played and fought there. Especially fought there. After a while they also lost the fight and went home in a huff. Since then, the United States hasn't been able to recognize the country.

But it's not just simple myopia that has caused Vietnam to disappear from the American view. Embarrassment and guilt have made it easy to focus on other parts of the world, and think of Indochina, if at all, as a minor adjunct to some other problem, somewhere else.

But while the Carter administration would rather forget Vietnam, Hanoi would welcome renewed, this-time-peaceful relations with the United States. Since talks on the normalization of U.S.-Vietnam relations broke down last December, economic setbacks and natural disasters have forced Vietnam to reconsider its demands for the resumption of diplomatic relations. Saturday the State Department announced that Hanoi had dropped its demand for reparations.

The country's economic troubles have worsened as the Vietnamese drive to develop lags, and the preliminary goals of its five-year plan are not being met. In an attempt to attract foreign investment, Vietnam now permits full foreign ownership of certain kinds of firms, the first socialist nation to do so. It has also begun discussing with U.S companies the exploitation of its offshore oil. The Vietnamese need for normal diplomatic ties with the U.S. became acute when four tropical storms hit in one week, flooding the Mekong Delta rice fields. The floods destroyed as much as 80 per cent of the rice crop, and Vietnam now needs the American trade embargo lifted to gain access to U.S. agricultural products. While the chronic Third World ailments are forcing Vietnam to push for closer ties with the United States the Carter administration, by not responding to Vietnamese gestures, is sacrificing any ability to realize the long term interests that the U.S. was supposedly protecting when it fought its splendid little war not so many years ago.

ANY GOALS that the U.S. has in the region are buried beneath the weight of the Carter administration's big-power calculus. The paramount U.S. interest in Indochina today is stability to preserve the non-socialist regimes that remain, and stability to insure the safety of Japanese and American trade throughout the region. But without normalization the United States forfeits its influence in the area. As a Congressional Research Service study noted, "Vietnam is essential to any regional arrangement for resolving conflicts and preserving peace in Southeast Asia."

The border war Vietnam is waging with Cambodia and China, and the friendship treaty signed Friday with the Soviet Union highlight the weakness of current U.S. policy. There is now no way short of invasion that the United States can pursue its interest in preserving the Southeast Asian status quo. Senator McGovern's suggestion tha the U.S. attack Cambodia might yet be followed by an impassioned cry to bomb the bridges on the Yalu River.

Yet one State Department official was content to say that Vietnam "was their problem now." In seeing Vietnam only as a semi-satellite nation of the Soviet Union, U.S. diplomats repeat, in an updated, streamlined, fully modern form, the same mistake of seeing Vietnam as a pawn of the Superpowers that got the U.S. involved in the war in the first place. During the war the U.S. sought to "save" the South to "contain" China. Now the whole region is seen only as a playpen for the client nations of the two Communist superpowers. The legitimate bilateral concerns that the U.S. and Vietnam might share are neglected.

The U.S. must normalize diplomatic relations with Vietnam to demonstrate its commitment to refrain from using war as an instrument of foreign policy.

Forgetting the last war and pretending that Vietnam does not exist cannot lessen U.S. responsibility for the devastation it wrought there. The U.S. has a moral duty and sound pragmatic reasons for participating in the development of an economically rebuilt Vietnam. After all, the U.S. very nearly succeeded in simulating lunar conditions in Vietnam. Carter claimed last year that "the destruction was mutual (and that) we ought not to assume the status of culpability." This position is patently absurd in light of the destruction inflicted on both North and South by the U.S. air war.

Normalization should come as part of a larger initiative throughout Asia; any current attempts by the State Department to pursue coherent Asian policies fail in face of the depressing fact that the U.S. lacks regular relations with both Vietnam and her most important and presently unfriendly neighbor, China.

But normalization should soon come. Fairy tales aside, the U.S. owes Vietnam much more than diplomatic relations. That should be the least it offers to a land it almost obliterated. And America, too, needs normalization beyond the practical, quantifiable gains of trade, new sources of oil, and regional stability. It is long past time that the U.S. learned to pursue its interests with legitimate methods. The U.S. should recognize Vietnam before thousands more "familiarize" themselves on some other continent in some other misbeggotten war.