GUERRERO VIEJO, Mexico, May 22 — Half a century ago this town was drowned. The United States and Mexico built a huge reservoir by damming the Rio Grande, under a treaty to divide the water of the mighty river.

Now the ghost of Guerrero Viejo has risen. The reservoir, drained by drought, thirst, population growth and personal greed, holds one-twelfth of its capacity. The town, once deep under water, stands on dry land. On the water's edge, two miles away, horses and cattle graze on grasses that should be five fathoms under.

The treaty is falling apart, along with any pretense that the United States and Mexico are not on the verge of political war. The water-management policies of both nations for the border can best be described in three words: pray for rain.

Under the terms of the treaty, Mexico now owes the United States 456 billion gallons of water — enough to quench the thirst of New York City for a year. The water should have flowed down the Rio Grande over the past decade, but didn't.

President Vicente Fox says he is preparing a plan to pay the debt back. Exactly how is a mystery.

"We can't pay it off, we don't have the water," said Enrique Martínez governor of the state of Coahuila, which borders Texas. He added a sober prognostication: "I think the struggle for water will be the gravest problem of this century."

This same struggle is simmering worldwide: rivers and reservoirs are running dry as a growing population fights over a shrinking source of life. The issue is testing the political friendship between Mr. Fox and President Bush, who knows it well from his days as Texas governor.

The two presidents discussed the debt twice in the past two months, once face to face at an economic summit meeting in Monterrey, Mexico, and again by telephone last week.

What started as a local dispute along the Rio Grande has turned into an international imbroglio, a question of national security for Mexico and a matter of survival for several million Texans and Mexicans. The crisis is shocking people on both sides of the border into seeing that there may be limits to growth.

In the Rio Grande valley, where the population has gone from 200,000 to 20 million since the water treaty was signed in 1944, the United States and Mexico "have been promoting growth" — industrial and agricultural — "as if there were no limit," said Alberto Szekely, Mexico's national water secretary. "And water is one," he said.

"Both sides were warned long ago that something like this would happen," he said. "But they were working on free trade and avoiding political issues like this." Water policy on both sides of the border, he said, has been marked by negligence and wishful thinking.

One-third of the water that flows to the Rio Grande above the Falcon dam is supposed to go to south Texas, and the remainder to Mexicans downriver. But with rivers and reservoirs at record lows, people on both sides of the border, dependent on the water for drinking and irrigation, fear their fields and towns will dry up and blow away.

[South Texas farmers, who have taken their case to the State Department, blockaded the border at the Pharr international trade bridge today in protest, demanding that Mexico pay back the water. Jo Jo White, the manager of one of the largest irrigation districts in the Texas border region, joined the protest.

"In 30 to 60 days we'll be out of water if Mexico doesn't comply," Mr. White, who manages irrigation for 300 farmers and 60,000 acres, said in a telephone interview. "The crops in the ground will be lost. The growers, who have been living on the edge — it'll be the nail in the coffin for them." Mexico has "shorted us, and they shorted their own growers twice as much," he said. "This is not only an American problem."]

The Mexican farmers near the river are petitioning President Fox to resolve the debt, run up by two past presidents, without destroying their parched lives.

"We really are out of water," said Juan Luis Zapata, a sorghum farmer wearing a New York Yankees baseball cap, in the town of Camargo, 35 miles downriver from the Falcon reservoir. "The government hasn't managed the water for the benefit of the people. Water has always been used as a kind of political power."

In Texas and in Mexico's Tamaulipas State, where Mr. Zapata lives, the farmers point upriver to the state of Chihuahua, where they claim officials are hoarding billions of gallons.

"We don't have any water," Patricio Martínez, the combative governor of Chihuahua, says flatly. He has defied both Mr. Fox and many American visitors, including Mr. White, by saying that his state's waters are sovereign — treaty or no treaty. "The harsh truth is that drought is a fact of life in northern Mexico and the southwestern United States," he said.

President Fox says Mexico, which has less water per capita than Egypt, has spent decades squandering what it has, "without planning, without sense."

To help him pay his old debt, Mr. Fox has asked the United States to let him take on a new one. In order to build a water system that does not waste half its flow through leakage and evaporation, Mr. Fox has asked Mr. Bush to loan Mexico about $420 million, or something less than a penny of financing for every 10 gallons owed.

This idea has infuriated the Texans, who see the request as blackmail. Governor Rick Perry, who succeeded Mr. Bush, has urged the president to not loan Mexico a dime until the debt is paid.

"We feel abandoned by a home-grown president who knew what was happening all along," Mr. White, the Texas farmer, said.

Mr. Fox's advisers fear that the United States will not agree to bargain with them on immigration and economic issues unless the debt is paid. The water issue has thus become a major point of discord in relations between two nations that seemed in exceptional harmony during Mr. Bush's first months in office.

In Mexico's Congress the opposition Institutional Revolutionary Party, which ran Mexico for seven decades until Mr. Fox's election, is skeptical of his promise to make good on the water debt.

"The water the U.S. is demanding doesn't exist," said Silvia Hernandez, head of the Senate committee on North American relations. "The plan won't work."

But back in Camargo, Mr. Zapata wipes the sweat from his brow, surveys his stunted sorghum with a weary gaze, and says there is no choice for Mexico.

"Look, this is an international treaty — we signed it," he said. "But without our own water, every day, every year, we will keep going backward until we're gone."

There is only one alternative, he said: "Pray to San Isidro," the patron saint of farmers, to make it rain.