AN EVALUATION OF THE THREAT TO BUSINESS AND THE STATE AS A RESULT OF TERRORIST ATTACKS NECESSARILY INVOLVES AN ASSESSMENT OF THE CAPABILITIES OF THE STATE AND ITS POLICE TO PREVENT AND RESPOND TO ATTACKS. IN THE AFTERMATH OF THE MORO KILLING, THE TASK OF CONFRONTING THE RED BRIGADE, THE FRONT LINE, AND THEIR ALLIES ON THE CITIES' STREETS MAY PROVE TO BE A DISCOURAGING JOB. RESTRICTIONS ON THE POLICE USE OF SURVEILLANCE AND INTERROGATION, IMPOSED FOR THE PROTECTION OF CIVIL LIBERTIES, HAVE LIMITED THE ABILITY OF THE POLICE TO DEAL WITH VIOLENT POLITICAL GROUPS. PROSPECTS FOR POLICE EFFECTIVENESS ARE POOR BECAUSE OF THE DIFFICULTY IN INFILTRATING THE TERRORIST CELLS. ALTHOUGH THERE IS NOTHING IN THE STRUCTURE OF THE SICUREZZA POLICE OR THE PARAMILITARY CARABINIERI THAT SUGGESTS AN INABILITY TO FIGHT TERRORISTS, THE ODDS FAVOR SHORT-RUN DISAPPOINTMENTS AND LOSSES BY THE STATE. DANGER SIGNALS IN THE FIGHT AGAINST TERRORISM IN ITALY INCLUDE THE CAPACITY OF THE TERRORIST TO ESCALATE THE LEVEL OF VIOLENCE, AS DEMONSTRATED IN MORO'S DEATH. THE ACTIVITIES OF THE RED BRIGADE INDICATE THE INTENTION TO 'STRIKE AT THE HEART OF THE STATE' AND FURTHER DAMAGE THE GOVERNMENT. HOWEVER, THE INCREASED VIOLENCE OF THE TERRORISTS HAS CREATED UNPRECEDENTED INTERPARTY COOPERATION IN PARLIAMENT AND PERMITTED A RARE POLITICAL CONSENSUS FOR HARDLINE RESPONSE. AN APPRAISAL FOR 1978 TO 1979 INCLUDES THE POSSIBILITY OF COOPERATION AMONG TERRORIST GROUPS AND INCREASED ATTACKS ON INDIVIDUALS AND FOREIGN CORPORATIONS. (TWK)