The United States is in the midst of reviewing its policy toward Bermuda, a US State Department source confirmed yesterday.

The review coincides with the appointment of top officer Mr. Joseph O'Neill, who assumed his post here in March.

Mr. O'Neill, who has been characterised as a State Department troubelshooter, is expected to remain in Bermuda until just after the summer by which time his policy recommendations will be complete.

The review was ordered this winter following the surprise news the Bermuda Government intended to investigate Independence and put its findings to a referendum.

One State Department source, who spoke on condition of anonymity, said: "The US Government was caught offguard (by the Independence initiative). "We just didn't know it was coming off. It took us by surprise.'' Mr. O'Neill is a State Department veteran who honed his diplomatic skills in Somalia, Ethiopia and Indochina -- postings that sometimes placed him in delicate negotiations with anti-US powers.

He has a reputation for conveying US Government messages and positions clearly and forthrightly.

When contacted yesterday for comment, Mr. O'Neill said he was in Bermuda to observe "the political process and the discussions on Independence and to keep my government aware of whatever takes place and how it will affect US interests in this area''.

"The US Government wishes to be positioned regardless of what happens so that it can continue its long, fruitful relations with the people of Bermuda and their Government.'' So far, Mr. O'Neill has meet with people involved in all aspects of political life, including top members of the Progressive Labour Party. Sources indicate that his questions have been framed to find out why and how things are happening.

When asked to comment on what he has learned so far, he said: "I know people who say Bermuda politics is simple, easy to define. It's absolutely untrue.

"The internal politics of Bermuda are as convoluted and as intellectually stimulating as any country I have served in.'' Mr. O'Neill said he has yet to make any policy decisions.

Just what that policy will be remains to be seen. Beyond serving the best interests of the United States, it will consider possible future needs here.

For example, earlier this week in a speech to a Kiwanis Club, Mr. O'Neill raised the possibility the US might want a military base in Bermuda again in the not-too-distant future.

That determination could affect current Base talks wherein the US might want to negotiate "a residual right'' to return to the Island under certain circumstances. An unoffical document recently obtained by The Royal Gazette indicates the US Navy at one time favoured that position.

Other policy considerations could include a decision to continue the tradition that the consul general be a political appointee.

Mr. O'Neill said his Bermuda assignment also involves "making sure the Base closure goes so well that when we leave here we will not have dishonoured the United States Government...'' Again he mentioned the consideration that "if we wish to return we would be welcomed by the people of Bermuda. We do not know what the future is going to be like''.

Underlying all of his considerations on a policy for Bermuda, Mr. O'Neill referred to the historic US-Bermuda ties that have been further solidified by marriage, education and trade.

"Bermuda has always been a good friend to us, both the people and the Government,'' he said. "We owe Bermuda, not only for the Cold War, the Second and First World Wars.''