LIHUE, Hawaii — The arching trees are so much firewood, the delicate silk tapestries so many rags, the reflecting pools now fetid swamps.

So easily is the studied fantasy of a luxury hotel such as the Westin Kauai Resort here reduced to wreckage by disaster.

And so too do the ruins of Hurricane Iniki undermine the illusion of paradise that is so crucial to the tourism that is this state's lifeblood, or to the economic development efforts that state officials have undertaken to lessen Hawaii's dependence on that key industry.

Looking ahead, state officials fear that the hurricane could derail Hawaiian efforts to reinvigorate the economy as it faces a crossroads.

Even before the hurricane struck last Friday, such traditional industries as tourism and sugar cane were already stagnating or in decline, the result of recession and world competition. Real estate, which attracted billions of dollars in Japanese investment in the 1980s, was also softening.

Officials were eagerly courting high-tech businesses or trying to tout Hawaii's attractiveness as a trade nexus, standing as it does smack in the middle of the Pacific Basin.

Though most of the damage was confined to Kauai, Iniki could set back development efforts in the whole state of Hawaii, local officials and business people said. The problem: The disaster creates uncertainty and diverts scarce resources.

The hurricane also creates a new set of disharmonious images that won't help attract the clean, high-tech industries favored by state economic development officials. The visions of roofless houses and flattened palm trees will take their place beside the more familiar grass skirts and white beaches.

"I can see the future now," said Pilialoha (T.C.) Caipbell, general manager of Scenic Air Tours, a charter plane service in Honolulu. "People are going to say there's terrible destruction in Hawaii. Don't go to Hawaii."

Economists in Hawaii said that despite the severe damage on Kauai, Hawaii was lucky because Oahu escaped damage. "If the hurricane had hit Oahu, this state would have been flat on its back for three years," said Sumner La Croix, a professor of economics at the University of Hawaii, explaining that most of the state's business and financial infrastructure is based in Honolulu.

Here on Kauai, Iniki dealt major damage to three main industries: tourism, agriculture and small businesses.