A NATION CHALLENGED: WHO SEETHES, AND WHY; Despair Beneath the Arab World's Rage

The Bush administration's war on terror is in some ways a war on the Islamic extremism that was born and bred in the crowded slums of Egypt and the sterile desert cities of Saudi Arabia, out of the abject sense of powerlessness that drives some people to loathe anyone who represents power.

As such waging and winning the war could require colossal change in both of those nations, whose rulers have often been America's strongest allies in the Arab world.

''This war on terrorism may eliminate a few terrorists,'' said Mohamed Zarea, a human rights activist in Cairo who believes political and social improvements are the ultimate answer. ''But without basic reforms, it will be like killing a few mosquitoes and leaving the swamp.''

American strategy in the Middle East has long relied on Egypt as a moderating force, particularly in the conflict with Israel, and Saudi Arabia as a stabilizing influence on the weak tribal regimes of the Persian Gulf, which control oil riches. Washington's appeal now would seem to be tailor-made for them. The Egyptians have known terrorism first hand -- President Hosni Mubarak was the target of an assassination attempt by Islamic militants in 1995. His predecessor, Anwar Sadat, was killed by them in 1981. The Saudi royal family, whose power rests on its claim to religious piety, has endured Osama bin Laden's charge of being unfit to oversee the holy places of Mecca and Medina.

But there are problems, too. Both groups of rulers are entrenched elites dealing with increasing social frustration -- rooted in stagnant economies and a paucity of jobs -- and the difficulty of managing generational change at the top.

Both have tried to weather a storm of anti-American sentiment in the last year, growing from the perception that the United States supports Israel against the Palestinians.

And now, the list of America's most-wanted terrorists, replete with the names of Egyptians and Saudis, has made it abundantly clear that hatred for the United States and its friends was nurtured on their own soil.

Egypt, with 69 million people, is the Arab world's most populous state. In a region made up of nations carved by European powers from the carcass of the Ottoman empire, it has the distinction of being the only Middle Eastern country living within its historic borders.

The Arab world's defining political ideologies have come out of Egypt. The Muslim Brotherhood, the grandfather of the modern movements that seek to replace secular governments with Islamic states, was born here. Pan-Arab nationalism, the secular movement that sought to erase the European-made borders and create a single Arab nation, took concrete form here.

Egypt was also the first Arab state to sign a peace treaty with Israel, a decision that ushered in Egyptian-American cooperation but cost President Sadat his life.

In the view of many Egyptians, the peace treaty has not brought the rewards they were led to expect in compensation for their isolation in the Arab world. The bulk of the more than $2 billion annual American aid goes to the military. Huge public housing projects, built far from the city centers in the desert, sit empty. Unemployment, especially among college graduates, has been rising.

Reform of the centrally planned economy has never really got off the ground. One third of the work force still holds government jobs that pay so little -- about 300 Egyptian pounds a month, or the equivalent of $71 -- that most people have to take on another job or two.

Yet Egyptian universities continue to grind out graduates. Each year, 20,000 new lawyers hit the streets, swelling the ranks of what economists here call the ''educated poor.''

Mr. Zarea, the rights activist, went to law school, like many young men from working-class families, carrying all his family's dreams of a better life.

Most of his classmates -- those lacking political or family connections to get a high-paying job -- ended up scraping by in private practice on $30 a month. ''You can't afford to take a taxi to court,'' said Mr. Zarea, who is 36. ''You go by bus. You can barely afford the suit you need to appear before a judge. So you work a second job as a waiter or a taxi driver or a manual worker.

''And after all this physical and mental effort,'' he said, ''you can't even start a life and get married because you can't afford it. And you end up blaming society and the government.''

Frustration is likely to intensify. Like most Arab countries, Egypt is awash in young people. More than 55 percent of the population is under the age of 25 and has known no other president than Mr. Mubarak.

In Saudi Arabia, almost 60 percent of the population is under 25. Unemployment is high. The oil wealth that seemed unlimited in the 1980's has proved insufficient to subsidize today's young people the way it did their parents. Criticism of the Saudi royal family that has ruled the country since its creation in 1932 is dealt with severely.

Predictably, the disappointed youth of Egypt and Saudi Arabia turn to religion for comfort. They blame the government but are fearful of expressing their anger openly. They blame outsiders -- in the Middle East, that is the seemingly all-powerful United States -- who seem to have everything.

''It's easy for the average Egyptian to say, we tried modernity but it didn't take us anywhere and we didn't become Europe,'' said Tarek Heggy, a wealthy Cairo businessman and political analyst. ''It's easy for him to say, we tried pan-Arabism and it didn't work. And, if he's a simple-minded person, he might say they didn't work because God wasn't with us.''

The Palestinian uprising, and the continued American and British bombing of Iraq, have also stoked the discontent about America.

When Mr. bin Laden was blamed for the attacks in the United States, many people in Cairo reacted with anger and disbelief. ''Every time it has to be Muslims to blame, every time!'' shouted Amaal abdel Rabboh, a housewife of 42, outside a mosque on Friday. ''Our blood is cheap, eh? No, our blood is precious and the American blood is water. Bin Laden is just an excuse to occupy Afghanistan.''

When Mr. bin Laden, a son of one of the richest men in Saudi Arabia and a one-time hero for taking up arms against the Soviet Union in Afghanistan in the 1980's, portrayed himself as a champion of Palestinians, he struck a responsive chord.

''You cannot expect people to join him tomorrow,'' said Fahmi Howeidi, an Egyptian commentator on Islamic political movements. ''But in the long run this increases sympathy for him.''