BY TERI SFORZA

It's the only royal palace on American soil. Fragrant flower leis adorn its imposing iron gates, framing the emblem of a nation that is no more: Hawaii.

It was here, at Iolani Palace, that American sugar farmers executed their coup in 1893, deposing Queen Liluokalani and imprisoning her inside.

It was here, at Iolani Palace, that the queen's loyal subjects wept bitterly as the Hawaiian flag was lowered - forever - in 1898, and the U.S. flag hoisted high in its stead.

And it is here, at Iolani Palace, that many Hawaiians are certain the queen's royal descendants will rule again. Soon.

Tropical Hawaii - prime honeymoon and holiday spot for 1.4 million Californians every year - could secede from the Union.

(Web Editor'sNote: Hawaii will not technically "secede" because there was never a legal cession of sovereignty or territory - a more appropriate term is restoration, not secession. )

What was viewed from afar as a fringe movement took a giant leap forward in September: Hawaiians voted 3-1 in favor of sovereignty, in a controversial election open only to "Native Hawaiians" (20 percent of the state's population) but paid for by the state government.

Some denounced the election as racist and illegal. Others boycotted it as a tool of the colonial invaders, read federal and state governments. Nonetheless, leaders boldly predicted that Hawaii will be its own nation within the decade - which could mean Californians might need passports and visas for those snorkeling trips to Maui.

The way the secessionists (sic) see it, the United States owes Hawaiians about $150 billion in back rent, plus $10 billion a year for those 1.8 million acres of government-owned land.

A strange discomfort possesses the 800,000 people in Hawaii who are not Native Hawaiians: What of the land they own? What of their rights? What of their U.S. citizenship? What will become of them in the new Hawaii?

"Instead of going backward and having a monarch again, we should go forward," said Annie Young, 21, a psychology major at UC Irvine who grew up in Honolulu. Young and her family are of Chinese descent; they did not get to vote in the election.

"I see both sides," Young said. "It was wrong to supress the Hawaiian culture the way they did. It should be brought back and taught in the schools. But, in a way, when the U.S. did take over, it helped us economically."

Young's family still lives on Oahu, but she plans to stay on the mainland - her right now as a U.S. citizen, which could evaporate if Hawaii breaks away. "I love it there, but it's such a small area," she said. "You can't go very far. That's the reason I came here. There's more opportunity."

A veritable war is erupting among Hawaii's some 40-odd independence groups over what the new nation should be - a battle almost invisible to tourists languishing on beaches, except for those sunning themselves at Waikiki when activist Dennis "Bumpy" Kanahele stomped along the shoreline, yelling "Go home!"

(Web Editor'sNote: This is not an accurate description of this event, which took place in 1994. A group of Hawaiians and supporters led by Mr. Kanahele walked peacefully down the beach handing out copies of the Apology Bill along with a plea to boycott Hawaii's tourism and return home, educating those who were interested as to the economic oppression caused on Native Hawaiians by the visitor industry. )

There are four possibilities for the new Hawaii:

• A complete divorce from the U.S., where Hawaii would again become a nation unto itself. That would require a vote of everyone in the state, not just Native Hawaiians.

• A "nation-within-a-nation," such as the American Indian tribes on the mainland. These would essentially be Indian reservations, sovereign on their own territory. The federal and state governments couldn't tell them what to do. That would require a majority vote of Native Hawaiians.

• A commonwealth, mirroring Puerto Rico.

• Status quo, but with greater native control over native lands.

"The election was a very big step, because it was the first and only formalized vote in over 100 years strictly for Hawaiians," said Tara Lulani McKenzie, executive director of the Hawaiian Sovereignty Elections Council, which spent $2.2 million on the effort.

The question was simply, "Shall the Hawaiian people elect delegates to propose a Native Hawaiian government?" Seventy-three percent said yes. The next step is to elect delegates to something like a Constitutional Convention, to figure out what form a Native Hawaiian government could take.

"Clearly, Hawaii has the right under international law to declare itself an independent nation," said Francis A. Boyle, an international-law expert at the University of Illinois at Champaign. "There's no way to avoid dealing with that. It's not going to go away. It's just going to gain more and more momentum."

Hawaii has something big going for it that the Confederates would have coveted: A formal apology from the United States of America, expressing "deep regret" for the illegal overthrow of the sovereign Kingdom of Hawaii by a conspiracy of American businessmen, diplomats and military in the twilight of the 19th century.

That apology - issued by Congress on Nov. 23, 1993, and signed by President Clinton - admits that "the indigenous Hawaiian people never directly relinquished their claims to their inherent sovereignty as a people, or over their national lands, to the United States," and that "the economic and social changes in Hawaii over the 19th and early 20th centuries have been devastating to the population and to the health and well-being of the Hawaiian people."

The apology could prove to be Hawaii's ticket to nationhood.

"The U.S. government basically says, `We stole Hawaii in violation of international legal standards. We inflicted genocide upon its people, and the Native Hawaiians have a right to self-determination that has never been exercised,' " said international-law expert Boyle, who has advised Hawaii on the burgeoning sovereignty movement.

Resistance to the "occupying colonial power" is mounting, said P.K. Laenui, once known as Hayden F. Burgess.

"In the schools, children are refusing to join in the morning flag Pledge of Allegiance to the United States. People are refusing to file tax returns or to pay income taxes. More and more defendants charged with criminal offenses are denying the jurisdiction of the American courts over them," Laenui said. "For many of us, the challenge is to overcome the fear of freedom."

Much like the mainland's American Indians, Native Hawaiians suffered great losses after the Europeans landed and have never caught up.

• MONEY: 14 percent of Native Hawaiian families live below the poverty level and receive some form of welfare, compared with 6 percent of all families. The unemployment rate for Native Hawaiians is 1.5 times higher than for Hawaiians overall.

• LAND: The government owns almost 40 percent. The remaining 60 percent is concentrated in the hands of six major owners, such as the Dole Food Co. An effort to give land back to natives came in the 1920s with the Hawaiian Homestead Act, which set aside 200,000 acres for Native Hawaiians. But less than 22 percent of that land is used by Native Hawaiians today.

• POPULATION: The Native Hawaiian population plummeted from 1 million to 10,000 one century after European contact. Today, 200,000 people claim a trace of Hawaiian ancestry. Hawaii's total population is 1.1 million.

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