The blast that toppled the U.N. headquarters in Baghdad ought to smash the Bush team’s la-la-land illusions about Iraq. Time is running out to salvage a decent result from the Iraq war.

The window could shut within a very few months.

Unless the Bush team drops its pretense that Iraq is doing fine, the country could soon deteriorate into what it never was under Saddam Hussein: a terrorist haven where Arab Islamists link up with secular ex-Baathists to pool funds and explosives. Bush’s taunt to Iraqi militants — “bring ’em on” — may come to look like the last hurrah.

This prospect is infuriating. It would mean that brilliant diplomats like Sergio Vieira de Mello died for nothing, as did dutiful U.S. soldiers — and Iraqis. It needn’t happen.

But this is where we’re headed unless the administration drops its Iraq illusions. Two of the biggest: there’s still lots of time to make occupation work, and we can do it on the cheap.

Bush supporters say the occupation has barely gotten started and point to our years-long stay in postwar Germany and Japan. But those countries accepted long-term American occupation on their soil.

In Iraq, we promised the population “liberation,” not “occupation.” Iraq sits in the heart of the Muslim Middle East, where Western occupation is an explosive issue. Most Iraqis are glad Saddam is gone, but anger at occupation is growing as the mighty Americans fail to deliver security, or electricity, or jobs.

The bomb at the U.N. headquarters only increases Iraqi fears that Americans can’t — or won’t — restore normal living. This in turn affects the prospects for combating the terrorist threat in Iraq.

The United States needs the support of the Iraqi people to fight terrorism in their country. This battle can’t be won by U.S. forces alone, nor by an increased international military presence. Neither can quash terrorism if it isn’t firmly rejected by the Iraqi people.

As the U.S. commander in Iraq, Gen. John Abizaid, said Thursday, “The real issue is intelligence.” Americans need the help of Iraqis in identifying and fighting saboteurs and terrorists in their midst.

So far the acts of violence don’t have widespread support. Most saboteurs seem to come from the minority community of Sunni Muslims who supported Saddam. Few Iraqis want those ex-Saddamists to triumph, nor do many support the Arab militants who are infiltrating Iraq. But if the occupation fails to improve Iraqi lives, more Iraqis will turn sour, especially if U.S. military raids kill increasing numbers of civilians.

A failing occupation could activate the most dangerous wild card — the Shiite factor. Until now, the religious leadership of Iraqi Shiites — a majority of the population — has called on its followers to avoid attacks on Americans. Shiite religious parties are waiting for Iraqi elections, in which they expect to do well.

If the occupation continues to falter, the Shiite establishment could turn against it. Militant Shiite clerics are already pushing their moderate religious leaders in that direction. Once the Shiites reject the Americans, all bets are off.

Iraqi anger can still be assuaged if the Bush administration is willing to put its money where its mouth is — meaning a massive infusion of funds to provide jobs and get services up and help Iraq’s transition government get going.

Another helpful step would be to invite in international firms that aren’t afraid of the security risk and will start reconstruction work immediately — instead of sticking with preferential contracts to White House friends.

But — dreaming dreams that Iraqi oil will pay the full tab — the Bush team has sharply limited spending on reconstruction. Paul Bremer, the U.S. viceroy in Iraq, says rebuilding the electrical grid alone will cost $13 billion and getting the water system in shape an additional $16 billion, but $2.5 billion is all the White House has budgeted.

This is self-delusion — as is the hope that America’s allies will cough up most of the additional billions. The president has two choices. He can let Iraq become a terrorist haven, or he can muster American resources to win over the Iraqi people (and let them hold elections ASAP). But if he does the latter, he’ll have to fess up to the American public that they’re stuck with the bill.

Trudy Rubin is a columnist and editorial-board member for the Philadelphia Inquirer. Her e-mail address is: trubin@phillynews.com.