SAN SALVADOR, El Salvador The Mexican lament ''How far from God and how close to the United States'' is even truer for El Salvador, 600 kilometers further down the isthmus of Central America. El Salvador's currency is now the U.S. dollar, and 1.5 million of its more than 6 million people work, legally and illegally, in the United States. The American Embassy is a massive fortress, a reminder that if necessary, the United States is ready to throw its weight around. This is the United States' ''near abroad.'' Of all Central America's civil wars, which in their time dominated the headlines almost as much as Iraq does now, Salvador's was the most deadly. But today the lions and lambs have lain down together. In 1991, bush-weary guerrillas were enticed into the open by the United Nations and signed a remarkable peace with the governing forces of the right, who were encouraged to compromise by their powerful friends in Washington. Today, the conservatives control the presidency, but the left has been elected to head the local government here in the capital and in other towns, and the United States seems happy to live with that. There is a sense of a great peace. Both sides have cooperated in ending the killings, torture and intimidation that were de rigueur. Though suffering at the moment from the drop in coffee prices and the earthquake that devastated half the country three years ago, the economy is essentially vigorous. Corruption is sharply down, and so to a lesser extent is crime. The difference from the era of civil wars is night and day - most capitalist institutions function quite well, and social and medical services are impressive even in remote areas. The infant mortality rate has fallen like a stone, and longevity has jumped. Much of the American contribution is a force for stability and economic growth. Still, many problems remain untouched. El Salvador, verdant and beautifully well ordered when viewed from the air, is the most densely populated country in Latin America. Half of its productive land is in the hands of a few thousand large owners. Although the campesinos have peace and can vote for an opposition with some political muscle, they still have not won what they once fought for - enough land to give them a living. Inside fortress America, the word from the diplomats is that they are not going to push for large-scale land reform. If there is to be development in the highlands, it must come from making do - as Farharna Haque-Rahman of the International Fund for Agricultural Development said to me, ''giving poor farmers a chance to do something for themselves, even if their land is a pocket handkerchief.'' For a couple of days she shepherded me around small farms, deep in the forest where the roads petered out into potholed tracks but where one of the fund's projects offers micro credit and sound advice. I met Julio Cortez Zavalla, who borrowed $300 from the project and now grows tomatoes, passion fruit and cocoa and makes cheese from his neighbors' cows. Twice a week his wife carries 20-kilo loads to the market five kilometers away. He has doubled his income in two years. ''We got kicked over the head by war,'' he told me, ''so now we are doing it the careful way.'' There was Virginia Palacios, who had a long shed behind her mud-and-brick house where she was breeding over 100 pure white rabbits for sale in the meat market. She too had taken a small loan from the project and had doubled her income. Then there was the small village of San José la Labor, which had combined its loan with money raised by an association in Los Angeles formed from people who had migrated from the village. They showed me round the school they had built with the funds. I remembered the war, when one feared for one's life in the countryside, when nobody dared to talk. This may not be as fair as it should be, but it's better than war. It is growing two blades of grass where one grew before. I only wish that both the government and the U.S. Embassy could understand what the campesinos could really do if they had a fair slice of land. That was part of the promise that ended the war but has yet to be delivered. (Jonathan Power is a commentator on foreign affairs.)