The capture of Saddam Hussein will have a crucial psychological impact – on Iraqis and on the Arab world.

This doesn’t mean the insurgency will end. Clearly, this bedraggled man inside a hole without a cell phone wasn’t organizing the attacks on Iraqis and U.S. troops. Those attacks may even increase in the near term, as the insurgency’s Iraqi organizers seek to prove they’re still strong.

But the seizure of Saddam, alive, provides a psychological turning point in the Iraq story. It gives U.S. officials a crucial second chance to get their flagging postwar policy right.

This arrest will dispel Iraqi doubts that U.S. officials wanted Saddam to be apprehended. Many Iraqis believed he was still free because that was what the United States wanted. This fueled Iraqi mistrust of America’s broader intentions and undercut U.S. efforts to get human intelligence about the insurgents.

When I heard Saddam Hussein was caught, I recalled four English professors I met six weeks ago in Baghdad, in offices that had been looted of all furniture and books after the war ended.

These women spoke fluent English and held doctorates, but they – like many, many Iraqis – thought America’s failure to catch Hussein was part of a deliberate plot. The devious Americans wanted to keep Iraqi weak so U.S. troops could stay forever and control Iraqi oil.

“We know you trained the looters who wrecked our buildings,” one professor told me. “We heard you trained them in Belgium. It was essential for America to cause this anarchy in order to control our country.” Another professor asked whether Saddam was being hidden in the United States.

Sound nuts? Perhaps, but such thinking was widespread. Few Iraqis understood why an all-powerful America couldn’t find one man. Long deprived of accurate information, Iraqis learned to compensate by hatching conspiracy theories. In recent months, they have had little access to U.S. officials or their own governing council, so these theories flourished.

Suddenly, Iraqis must reassess. The graphic film footage of the bedraggled captive, his mouth being swabbed for DNA that proved his identity, convinced even skeptics that Saddam was finally finished.

For Shiites and Kurds, who hated Saddam, this offers hope that things may improve. For Sunnis, who profited from his rule and still give active or passive support to the insurgency, Saddam’s demise must cause them to reexamine their options.

Even the famously anti-American Arab satellite network al-Jazeera changed its tune during the day of Saddam’s arrest. Early footage of an Iraqi crowd cheering Saddam in April eventually gave way to scenes of Saddam’s capture. My Arab sources in Cairo and Amman reported that people were gloomy because Saddam had betrayed their belief that he was a hero who could stand up to America.

“He was not that hero,” says the thoughtful Jordanian commentator Adnan Abu Odeh, “so many Arabs are disillusioned. The way he was arrested, the way he looked, the examination of his mouth. It was so humiliating and so revealing. He looked like a homeless man on the streets of New York.”

Will this make Iraqi Sunnis reasses whether they have been backing a loser, in hoping for his, or at least his Baath Party’s, return to power?

Some Iraqis think so.

“It’s a turning point,” says Zuhair Humadi, an Iraqi-American activist recently returned from Baghdad. “Those Sunnis who took regime money when Saddam fell will now want to keep it” rather than pay insurgents. “They will see the war as a losing cause. Now it will be each one for himself.”

Perhaps. That will depend on whether U.S. and Iraqi officials use this critical moment to woo Sunnis back into the Iraqi fold. Until now, U.S. and Iraqi officials have lacked a strategy that would separate ordinary Sunnis from the bitter enders with blood on their hands.

On Monday, in the wake of the big news, there were signs such a strategy may be in the works. Tony Blair, along with U.S. occupation czar Paul Bremer and members of Iraqi’s governing council, talked of Saddam’s capture as the signal for Iraqi reconciliation.

“This is the first shift toward a new policy toward Sunnis, a clear recognition that we can’t wait to engage them,” says one of the most thoughtful Iraqi opposition figures, Laith Kubba.

The insurgency will go on, but U.S. officials have a new chance to split the Sunni community. This would isolate the bitter-enders who still want to fight. Such a strategy will require a better plan for transfering power to Iraqis, one that persuades Sunnis they will be included.

The window is open, but not indefinitely. As Kubba says, U.S. and Iraqi leaders “would be absolutely dumb if they waste this huge new opportunity to get it right.”

Trudy Rubin is a columnist and editorial-board member for the Philadelphia Inquirer.