Suspicions continue to mount that North Korea torpedoed the Cheonan, a South Korean corvette which sank more than a month ago in the Yellow Sea to the west of the Korean peninsula. Policy makers in both Seoul and Washington are pondering how to respond. The potential, even if small, of renewed conflict on the peninsula demonstrates that today’s status quo is unsatisfactory for all of the North’s neighbors.

The Korean War ended in an armistice nearly six decades ago. No peace treaty was ever signed; over the years the Democratic People’s Republic of Korea committed numerous acts of war, most dramatically attempting to assassinate South Korean President Chun Doo-hwan during a visit to Burma and seizing the U.S. intelligence ship Pueblo. Conflict was avoided because the United States, long the senior partner to the Republic of Korea in their military alliance, refused to risk igniting a new conflict.

In recent years the DPRK’s conduct has remained predictably belligerent but constrained: fiery threats, diplomatic walk-outs, policy reversals, and unreasonable demands have mixed with occasional cooperative gestures as Washington and Seoul attempted to dissuade the North from developing nuclear weapons.

North Korean relations recently have been in a down cycle. Pyongyang has walked out of the long-running Six Party talks and failed in its attempt to engage Washington. South Korean President Lee Myung-bak has ended the ROK’s “Sunshine Policy,” which essentially entailed shipping money and tourists north irrespective of the DPRK’s conduct, causing North Korea to downgrade economic and diplomatic contacts and even recently confiscate South Korean investments. Japan’s relations with the North remain stalled over the lack of accounting over the kidnapping of Japanese citizens years ago.

Still, for at least two decades Pyongyang had eschewed military action. Shots were fired between South and North Korean ships last November near the disputed boundary in the Yellow Sea, but no harm was done. Brinkmanship was the DPRK’s standard diplomatic strategy. Triggering a new war was not. Why the North would sink a South Korean vessel is a matter of speculation. More critical is the response. Now what?

The issue is most pressing in Seoul. South Korean officials say the investigation continues as they seek definitive evidence that a torpedo sunk the Cheonan. The tragedy would be no less if the cause was a mine, but the latter could be dismissed as an unfortunate occurrence rather than deliberate attack.

If the sinking was intentional, however, the ROK must respond. To do nothing would reward the North and encourage additional irresponsible action. President Lee Myung-bak has said: “I’m very committed to responding in a firm manner if need be.”

One South Korean diplomat suggested to me that the South will seek Security Council condemnation of the DPRK. This is in line with President Lee’s promise “to cooperate with the international community in taking necessary measures when the results are out.” But even if Seoul won Chinese support for a UN resolution, the ROK would have to take bilateral measures. That certainly would end investment and aid, likely would prevent negotiations and possibly would entail military retaliation.

The result not only would mean a serious and prolonged worsening of bilateral relations and increase in bilateral tensions, but could end any chance — admittedly today very slim — of reversing North Korean nuclear development. Moreover, a military strike would entail a chance of war. Tit-for-tat retaliation might spiral out of control. The potential consequences are horrifying.

The ROK nevertheless might be willing to take the risk. Not Washington. The United States is cooperating in the investigation and reportedly urging the Lee government to wait for proof before acting. But even if the DPRK is culpable, the last thing the Obama administration wants is another war. Secretary of State Hillary Clinton said last month: “I hope that there is no talk of war, there is no action or miscalculation that could provoke a response that might lead to conflict.” From America’s standpoint, avoiding a potentially bloody war on the Korean peninsula while heavily involved in Afghanistan and still tied down in Iraq is far more important than South Korean concerns over justice and credibility.

The People’s Republic of China also would be a big loser in any war: refugees would and conflict could spill over the Yalu. The North Korean state likely would disappear, leaving a united Korea allied with America and hosting U.S. troops near China’s border. Beijing’s international reputation would suffer as its policy of aiding the North was fully and dramatically discredited.

Japan would be less vulnerable to the consequences of war but could be the target of North Korean attempts to strike out. Undoubtedly, Tokyo also would be asked to contribute to the peninsula’s reconstruction.

Of course, North Korea and its people would suffer the most. The former would cease to exist. That would be an international good, but millions of North Koreans likely would die or otherwise suffer along the way. War would be a tragic end to decades of hardship and isolation.

What to do? Seoul needs some degree of certainty before acting. So long as the sinking might have been caused by a mine, the ROK cannot act decisively.

If a torpedo attack is the most likely cause, however, winning Security Council backing would be a useful step. Then finding the right level of response, including possibly closing the Kaesong industrial park in the North or targeting a North Korean vessel for destruction, would be necessary. If it chooses the latter, the ROK would need Washington’s backing and China’s understanding. Finally, a lot of people in several countries would have to cross their fingers and say some prayers.

In any case, the six-party talks would seem kaput. State Department spokesman Philip Crowley said the Obama administration remained committed to the negotiations despite the sinking, stating that “I wouldn’t necessarily link those directly.” Yet the likelihood that Pyongyang would yield its nuclear weapons while sinking South Korean vessels seems vanishingly small. Even a minimal possibility of a negotiated settlement should be pursued, but at some point the effort simply looks foolish.

That’s the short-term. Two longer-term issues require attention, however the current controversy is resolved. First, the United States and ROK must reconsider their alliance relationship. Even on the issue of defending against the DPRK their interests differ: Seoul must satiate an angry public desiring vengeance as well as preserve its credibility in confronting the North. America must avoid another war at most any cost.

Given the South’s level of development, it makes no sense for its defense decisions to be subject to Washington’s veto. Nor does it make any sense for the United States to risk being drawn into a war as a result of acts between other nations. These bilateral differences are only likely to grow, especially if the relationship between America and China grows more contentious.

Then South Korea could find itself risking involvement in Washington’s war. Also involved is the ROK’s self-respect. In two years the U.S. plans on devolving operational control of the combined forces to South Korea. Yet some South Koreans fear their nation won’t be ready to lead its own defense. That Washington took military command in underdeveloped, impoverished South Korea in 1950 is understandable. To argue that America must continue doing so in 2010 is bizarre.

Second, the United States, South Korea and Japan must develop a unified approach to China built on the sinking of the Cheonan. Even if the North is blameless, the incident demonstrates that the status quo is dangerous. Just one irresponsible act from the unpredictable DPRK could trigger a new devastating conflict. And if Pyongyang is guilty, the risk could not be clearer.

Until now the PRC has viewed the status quo as beneficial: the DPRK remains a friendly buffer state; a North Korean atomic bomb would not be directed at China; the United States and ROK must perennially go hat-in-hand to Beijing to beg for its assistance in dealing with the North. In contrast, applying substantial political and economic pressure on Pyongyang would risk breaking the bilateral relationship and might spark a violent collapse, unleashing a flood of refugees.

The PRC has said little about the Cheonan incident. The foreign ministry called the sinking an “unfortunate incident.” Beijing’s ambassador in Seoul reaffirmed his nation’s commitment to peace and stability.

The allied pitch should be simple. As noted earlier, the risks of war are obvious and catastrophic. But even if peace survives, today’s badly misgoverned DPRK might implode of its own accord, even without Chinese pressure. There is a possibility of violent collapse, given the North’s impending leadership transition and apparent signs of public dissatisfaction, which would have significantly negative consequences for Beijing.

And if Seoul eschews military retaliation, the North’s ongoing nuclear program combined with warlike provocations would place increasing pressure on the South and Japan to develop countervailing arsenals.

Beijing should take the lead in forging a new, active policy designed to both denuclearize the Korean peninsula and promote political and economic reform in the North. In fact, a Chinese commitment to take a much more active role might help convince Seoul to choose nonviolent retaliation for the Cheonan’s sinking.

Although few people expect the Koreas to end up at war, the risk is real. And unacceptable. The incident should impel a serious rethinking of the current U.S.-ROK alliance as well as the strategy for involving China in the North Korean issue.