By Robert A. Pastor
Special to CNN Interactive

The Panama Canal's Gatun locks during construction, circa 1910-1914

(CNN) -- The evolution of U.S. leadership in the world can be seen in its relationship to the Panama Canal at the dawn of the 20th century and at its dusk.

America's construction of the canal in 1904-14 was one of the century's great technological feats, one that Europeans tried but failed to do. On the last day of the century, the United States will officially transfer to Panama responsibility for the operation, administration and defense of the canal.

If the canal's construction symbolized the arrival on the world stage of a new power, the United States, the transfer demonstrates that America's real source of strength lies in its ability to adapt to a changing world.

NARRATIVE   • Strategic: A century's journey in Panama   • History: Troubled passageway   • Operations: Transfer heavy on symbolism, light on change   • Politics: Canal return a mixed blessing?   • Interview: Historian David McCullough   • Security: Colombia boils

At the beginning, the United States needed to control the canal to secure it; at the end, we understand that the best defense of the canal required that we transform a resentful neighbor into a partner.

With the help of Panamanian, Caribbean and Chinese labor, Americans built a canal through the middle of Panama. We protected it with a 10-mile wide Canal Zone. During the two world wars, the canal was a vital strategic artery for the United States and our allies. By the Korean War, however, the canal's width could not accommodate the huge aircraft carriers that had become the centerpieces of our fleets in both oceans. Still, the canal remains very important economically as a transportation route.

The Panamanians were proud of their greatest resource but increasingly resentful over what they viewed as a colonial presence that divided their country in half. In 1964, a fight over a flag in the Canal Zone between Panamanian and American students left 23 Panamanians and four U.S. Marines dead. Panama insisted on new treaties, and most Latin American leaders supported them. The talks began in 1964 and concluded in 1977 with two new treaties.

A cruise ship squeezes though Gaillard Cut, the narrowest stretch of the canal

The Panama Canal Treaty called for the end of the Canal Zone in 1979 and the gradual transfer of responsibility for the canal to Panama to be completed on December 31, 1999, with the withdrawal of U.S. troops and closure of bases. Panama would be responsible for the canal's defense. The Treaty on the Permanent Neutrality of the canal, however, gave the United States the right to defend the canal, preferably in support of Panama, but if necessary and under extreme circumstances, by itself.

The debate on the treaties was intense and politically controversial. Many felt a sentimental attachment to this great achievement. One senator joked that "we should keep it because we stole it, fair and square."

President Jimmy Carter, with the support of the Joint Chiefs of Staff, Republican Senate Minority Leader Howard Baker, former President Gerald Ford and Secretary of State Henry Kissinger, argued that the 1903 treaties actually endangered the canal by enraging Panamanian and Latin American nationalism. The best defense of the canal, they said, would be to become a partner with Panama. The treaties passed by a single vote in the Senate.

The United States operated the canal as a model of state socialism. Panama has a better idea. It will do a good job operating the canal, and it is privatizing the ports and inviting foreign investors to build hotels, industrial parks, eco-tourism, ship repair facilities and private housing.

U.S. President Jimmy Carter and Gen. Omar Torrijos, Panama's leader, shake hands after signing the Panama Canal Treaty on September 7, 1977

One of the largest shipping and container operators in the world, a Hong Kong firm called Hutchison-Whampoa, bid successfully to manage two ports. Some conjure up phantoms of Chinese Communists using Hutchison to threaten the canal, but China does not have the capability to seize Taiwan -- just 90 miles off-shore -- let alone a canal that is 10,000 miles away. Furthermore, Hutchison has a stake in promoting the canal, not harming it.

More importantly, Panama has no intention to trade away its new independence, and the United States has all the rights and the power needed to defend the canal.

In the new century, the continued ability of the United States to lead will depend on the partnerships we forge around the world. The best place to start is with our friends in Panama. We will demonstrate our greatness twice if we exhibit as much pride in transferring the canal at the end of the century as we did in building it at the beginning.

Robert A. Pastor, professor of political science at Emory University in Atlanta, is the editor of "A Century's Journey: How the Great Powers Shape the World" (Basic Books, 1999). He was director of Latin American Affairs on the National Security Council when the canal treaties were negotiated and ratified.