Bahrain is tiny -- an island kingdom off the Saudi coast with a half-million citizens and as many expatriate workers.

It’s also a strategic spot that hosts the U.S. 5th Fleet. And the turmoil there says a great deal about the sectarian forces at work in the Mideast and how conflagrations could be avoided with judicious leadership.

This week, Bahrain’s government announced measures to ban a Shiite opposition party that has played a major role in anti-monarchy protests, apparently for minor technical violations. The move was an illustration of the twin sins that bedevil so much of Mideast governance: elites who hoard rights and power and who oppress sects different from themselves. In this case, a Sunni royal family rules supreme over the country and in particular holds down the country’s Shiites, who make up as much as 70 percent of the citizenry.

Inspired by the rebellion that deposed Egyptian President Hosni Mubarak in February 2011, popular unrest in Bahrain has grown increasingly sectarian. The risk is that the Sunni-Shiite division will become irreparable and spread, notably to neighboring Saudi Arabia.

The government has made vague promises to redress Shiite complaints but has fallen short on particulars. Left to his own devices, King Hamad Bin Isa Al Khalifa, a progressive by Gulf standards, would do more. However, Bahrain lives under the shadow of ultraconservative Saudi Arabia, to which it is beholden for oil revenue.

The Saudi royals reject serious democratic change in Bahrain for fear of establishing a precedent. Their rule is more absolute than the Bahraini royals, and they worry about feeding disquiet among minority Shiites in Saudi Arabia’s eastern province, center of the country’s oil installations. It was a Saudi-led force that, by invitation, quashed demonstrations in Bahrain in March 2011.

For its part, the Obama administration has done little but protest mildly as the democratic aspirations of Bahrainis have been crushed. This contrasts starkly with lively U.S. diplomacy on behalf of rebellions in Egypt and Syria and even military action in Libya. The reason is understandable: The U.S. is loath to alienate Saudi Arabia, the one country able to tamp down oil prices.

This policy, however, reinforces a sense that the U.S., with its determination to corner Shiite Iran and its ally Syria (run by an Alawite regime), is becoming the sponsor of the Sunni cause in the Mideast. Bahrain is a second opportunity, after Iraq, for the U.S. to show it supports the rights of Shiites. It also presents real potential for a peaceful transition. Bahrain has a reform-minded king and an opposition open to concessions short of regime change.

What might those changes look like? Well, it would be nice to imagine more Shiites in the 23-member cabinet (four Shiite ministers resigned when the protests began) and in the senior levels of the security forces, where only a few hold significant positions. Electoral districts could also be redrawn to correct the gerrymandering that has curtailed the Shiite share of seats (currently eight of 40) in the elected chamber of the National Assembly.

Monarchic reforms are not out of the question, either. The king currently selects all 40 members of the National Assembly’s appointed chamber. He picks the prime minister, who names all cabinet members, more than half of whom are typically royals. Drawing on pledges already made by the kings of Morocco and Jordan, Bahrain could move toward becoming a constitutional monarchy, one where a fully elected National Assembly appoints a prime minister who then appoints a cabinet.

None of this will happen without Saudi Arabia’s acquiescence, and for the Saudis to budge, the U.S. will have to exercise some leverage. In response to the crackdown on Bahraini protestors, the U.S. cut Bahrain’s $15 million in military aid by $5 million. That was a penalty applied to the wrong kingdom. The U.S. gives no significant aid to the Saudis, but does authorize many billions in sales of military equipment, which by law is intended solely for self-defense. We don’t think suppressing civilian protests in a neighboring country qualifies.

U.S. officials should strive to convince the Saudi royals that a fairer deal for Bahrain’s Shiites, not to mention Saudi Arabia’s, would strengthen their position and lessen the odds of meddling by Shiite-majority Iran. It’s true that the Saudi rulers, unlike their relatively strapped Bahraini counterparts, can forestall rebellion by offering the population new allowances, housing loans and other benefits. But as they should know from looking west to Egypt, south to Yemen and east to Syria, lately letting autocracy alone hasn’t proved a winning strategy.

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