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JUST DAYS BEFORE, PALACE watchers had been buzzing about the latest volley between the Princess of Wales and her putative rival Julia Carling. The Daily Mail had reported on Oct. 11 that, furious at being branded "a homewrecker" because of her friendship with rugby star Will Carling (who separated from Julia in September), Di had wondered whether to suggest a tête-à-tête with his estranged wife "to clear the air." According to the Mail's Richard Kay, her favorite conduit on Fleet Street, the notion was rejected, and she complained about "being used" by Ms. Carling (a public relations veteran turned TV hostess). A few days later, on cue, the tabloid News of the World reported that Julia had cried on the shoulder of hairdresser Daniel Galvin Jr., the son of Di's hair colorist (owner of a salon by the same name), lamenting, "I can't compete with a princess."

Then, on Oct. 18, Di's most formidable rival, the freshly divorced Camilla Parker Bowles, stepped in and eclipsed the sniping. That evening, Camilla—whose affair with Prince Charles had helped undermine the Waleses' tenuous marriage—attended a high-profile party at which Charles made an astonishing appearance. Showing off her slightly trimmed-down figure in a boldly décolleté black gown, a radiant, blonder Camilla beamed at photographers as she swept into London's Ritz Hotel at 8:45 p.m. for the 50th-birthday party of her friend Lady Sarah Keswick. To the amazement of the paparazzi, the Prince of Wales—who, until now, has avoided attending public events at which Camilla was present—strolled past 90 minutes later on his way to the same fete. When Fleet Street seized the story, it was Camilla—not Diana—who was portrayed as the predator who snared a married man.

Snapped at the London restaurant Bibendum after lunch the next day, Diana, 34, looked untroubled by the couple's carefully orchestrated outing. But royal watchers were convinced that a new era had begun, and that Charles was desperate for Britain to accept the woman he loves—if not as his wife, then as his companion. The joint appearance "was hugely significant," says a veteran journalist who covers the Palace. "It opened up the gates a little further—making the point that he and Camilla are a couple and will be seen at things together."

Lovers who began their affair 24 years ago, Charles, 46, and Camilla, 48, chose a party given by a mutual friend as the setting for their de facto debut. They spent almost 2 hours together at the $75,000 gala in the hotel's ornate ballroom—dining, dancing and mingling with 150 other guests, including actress Diana Rigg, Camilla's ex-husband Andrew and their 20-year-old son, Tom. Charles departed alone at midnight; Camilla left an hour later, escorted by the loyal Andrew, from whom she was divorced in March. Passing through a mob of journalists who asked whether she had enjoyed the party, the prince's formerly skittish mistress smiled broadly and replied, "Yes, thank you."

Ironically, Charles's campaign to bring Camilla to center stage coincides with Diana's return to the royal fold. Alarmed by the headline-grabbing gaffes that followed her 1993 retreat from public life—including being photographed topless in Spain and making obsessive phone calls to married art dealer Oliver Hoare—Palace spin doctors urged Di last year to resume her official duties. "The Queen realizes that Diana is still an asset and that it's far better to support her doing more public engagements than to have her as a loose cannon," says a longtime royal watcher.

Despite the Carling debacle, the strategy seems to have worked. These days, public life serves as a kind of anchor for Diana—taking the edge off the loneliness that set in after the Waleses' December 1992 separation. Guided by brother-in-law Sir Robert Fellowes, the Queen's private secretary, she is gradually taking on more public engagements. In November 1994, she made an official trip to Paris, and in February she embarked on a four-day tour of Japan—where she was mobbed by fans chanting, "Diana-san, Diana-san." June brought high-profile trips to Venice and Moscow, and another jaunt to Paris followed in September, A visit to Argentina is planned for November, and in December Diana is due at a Manhattan gala to receive the Cerebral Palsy Foundation's Humanitarian Award.

To royal watchers, the change is dramatic. "Six months ago, Diana was teetering on the brink of becoming a cafe-society butterfly," says Brian Hoey, author of 12 books on British royalty. Under the influence of mentor and shopping companion Lucia Flecha de Lima (wife of Brazil's ambassador to the U.S.), Hoey says, Di made a series of trips to the States that underscored her aimlessness and sparked tales that she was ready to become an expatriate. But after Flecha de Lima dropped her name in a March interview with the Sunday Times—saying, "[Diana's] so lonely; she does not know who she can trust"—the princess turned chilly—and began turning more to Fellowes for advice.

While the Palace has helped to correct her course, Diana is still plagued by a sense of isolation. At the moment, one of her few confidantes is socialite Rosa Monckton, managing director of Tiffany in London. "Two years ago, she was out nearly every night seeing friends," says Hoey. "When she's seen now, she's nearly always alone or with one of her detectives. She's in desperate need of more true friends." (Still, Di has strengthened her bond with her mother, Frances Shand Kydd, who lost custody of her four children after her 1969 divorce from Earl Spencer. In an Oct. 20 interview on Scottish TV, Shand Kydd, who lives in Argyll, said that the family had pulled together to cope with Diana's fame, and that she was "proud to bits of her.")

Always chummy with her staff, Di has appropriated her servants as a surrogate family. At Kensington Palace, she frequently drops into the kitchen for a light supper with chef Darren McGrady and often treats staffers and their children to outings with princes William, 13, and Harry, 11. On some occasions, though, she is unable to rustle up even hired company. After a Christmas morning service with the Windsors at Sandringham last year, she drove back and lunched alone at the Palace.

Her involvements with men, of course, have been disastrous: Rumor has it that she is still infatuated with the dashing Hoare, 49, who is said to be repairing his marriage to wife Diane, 47. And although her sons regard Carling as a hero, Diana has dropped her flirtation with him. Just in time, it seems; in the wake of his separation, editorial writers took her to task for "flattering him into behaving like [an] idiot," as the Sun put it.

When, on Sept. 6, William began classes at Eton—just a mile from Windsor Castle—Diana's loneliness was compounded. "She realized this was a watershed in both their lives," says Hoey. "Any boy who goes to public school moves out of his parents' orbit, and because he is heir to the throne, it's the Queen who will influence him in the future."

Adds Hoey: "In public, Diana is terrific, but she has very dark moments when she cries her eyes out." Although he concedes that Di (who reportedly is taking the antidepressant Prozac and seeing both a psychotherapist and bulimia counselor Susie Orbach) is "less unstable than she was a year ago," he argues that easing back into public life is only a partial solution for the princess: "In her private life, she is still at a loss."

Dark moments or no, Diana has managed to forge a kind of truce with the husband she once loathed; after three years in separate corners, she and Charles have relinquished some of their bitterness toward one another. On William's first day at Eton, they made a show of togetherness by arriving with their sons—and a detective—in the same Jaguar. On May 7, Diana accepted a cordial peck from Charles during VE-Day anniversary ceremonies in Hyde Park, and at the end of October it was announced that both Charles and Diana would be lending support to the Battle Bridge Center's pioneering plan to house London's homeless.

By most accounts, a divorce is unlikely—at least for now—since Diana is loath to relinquish her status as a royal. "She's a woman who needs to be sought after," says Hoey. "If she gets divorced and becomes a countess or whatever, she'll be a nothing."

For his part, Charles has realized that Di is useful in her public role and that a divorce could leave him in a tricky position. As a free man, he would risk being perceived as a cad if he failed to marry his mistress. But if he took Camilla as his wife, he would risk alienating the British people—and, perhaps, losing the throne. According to most royal watchers, he seems to hope that by bringing the relationship into the open (a strategy opposed by some courtiers), he will wear down the public's objections to Camilla. "It will be 'drip, drip, drip,'" says the journalist covering the Palace. "The next eight times it will cause a stir. But after the 14th time, I don't think it will."

For the nonce, Charles and his paramour are settling into a rather cozy life. Although the Queen Mum reportedly has turned down Charles's request that she receive Parker Bowles, Camilla is said to have joined him in September in Scotland while other members of the royal family were on holiday at Balmoral. Since July, when she moved from the Parker Bowleses' Wiltshire house (sold for $2 million to Pink Floyd drummer Nick Mason) into temporary quarters on a neighbor's estate, Camilla has appeared in public and at Highgrove, Charles's country house, more frequently. (According to a report in the Daily Mail, a friend of Parker Bowles said Camilla told her, "F--k it, I'm entitled to a normal life.") Charles reportedly is helping her decorate her new $1.2 million home, Ray Mill House, a secluded Regency mansion 16 miles from Highgrove; until she moves in this month, she is stabling her horses and keeping her Jack Russell terrier Freddy at his estate.

Even Diana's boys, it seems, are being asked to become accustomed to Camilla. On Oct. 22, the News of the World reported that Charles had a talk with William before he went to Eton, explaining that Parker Bowles would always be a part of his life.

Not that Camilla is without competitors: According to some royal watchers, Alexandra "Tiggy" Legge-Bourke, 30, the assistant who supervises the princes when they are with Charles, has caught his eye. During the past 10 months, Charles has greeted Legge-Bourke with a public kiss several times, most recently in August, at Balmoral. Once plump and rambunctious, the athletic blue blood has lost 28 pounds and become "more graceful and composed," as the Daily Mail put it on June 18. "... the word at Buckingham Palace," the paper added, "is that Tiggy is slimming to please her employer Prince Charles." Others, however, are skeptical: Noting that Legge-Bourke has explained her weight loss by saying that a gastrointestinal problem has forced her to forgo bread and pastries, royal author Lady Colin Campbell asserts, "Camilla is the only woman in Charles's life."

The only woman, of course, aside from Diana, who is determined not to be upstaged. Obsessed with fitness, she prepared for her return to public life by giving her body a more athletic look—pushing herself through vigorous aerobic routines and a weight-lifting program devised for her by her ex-trainer Carolan Brown. Three mornings a week, Di drives to the exclusive Chelsea Harbour Club, where she often met Carling, to play tennis or build muscle on the exercise machines. On other days, she swims at Buckingham Palace or visits London's BiMAL sports clinic—another Carling haunt—where therapists help her work the right knee that she injured in March.

And though some cynics claim that Diana has traded one obsession (bulimia) for another (exercise), fashion editors are impressed: In June, Tatler style director Kate Reardon told the Daily Mirror, "Diana looks fit and fabulous!" Proud of her new strength and shape, Di has made a point of turning out in daring dresses whose necklines have plunged deeper and hemlines inched higher as the year has gone by.

Of course, the princess can't spend all of her time honing her body—or showing off her new look. As it happens, she has devoted part of her energy of late to renewing at least one old friendship. She and the scandal-plagued Duchess of York—who is also intent on staying within the embrace of the royal family—have been seeing one another at Fergie's rented house in Surrey. Notes one prominent royal watcher: "They're two girls who have similar problems. They feel beleaguered—and they need someone to trust."

MICHELLE GREEN
LYDIA DENWORTH, MARGARET WRIGHT and ELIZABETH TERRY in London

  • Contributors:
  • Lydia Denworth,
  • Margaret Wright,
  • Elizabeth Terry.