A contentious issue involving a $700 million Waikiki hotels project, hundreds of possible jobs and shoreline use policy is being held up by a bureaucratic knot, one that deserves quick attention.

In question is whether an eight-story Diamond Head Tower fronting Waikiki’s Kuhio Beach should be replaced with a 26-story hotel-condominium tower that would be within the 100-foot shoreline setback zone.

There are enough mitigating circumstances here for project owner Kyo-ya Hotels & Resorts and its environmental opponents to attempt mediation toward a compromise. Meanwhile, though, the city needs to resolve the procedural bottleneck at its Zoning Board of Appeals.

The controversial oceanfront tower is part of a multi-site development project that includes a new 33-story tower at the nearby Princess Kaiulani Hotel and renovation of the existing 29-story Ainahau Tower there. They are integrally related because the inland tower is to include parking for guests of the enlarged Diamond Head Tower; the total number of rooms to be built and operated is also conjoined.

An initial land-use compromise of sorts was achieved last December, when Kyo-ya agreed to scale back the top floors of its proposed Diamond Head Tower in stepped recess from the ocean in order to gain zoning variance from the city’s planning director. But that has not satisfied environmentalists, and four advocacy groups and an individual are now appealing the decision to the city Zoning Board of Appeals, which is where the snag has occurred.

Two of the appeals board’s five members stepped away from the issue because of conflicts of interest, since they do business with Kyo-ya. A third member, Herb Chock, disclosed that he has done work for Kyo-ya in the past but no longer does so, and he sees no conflict. Project opponents appealed the question to the city Ethics Commission.

The commission is expected to give its advisory opinion to the zoning board sometime this month. If Chock is allowed to take part, the three members could vote on the Kyo-ya issue. If the board decides that Chock must step aside, however, it would lack the quorum necessary to rule on the project.

Two of the zoning board’s members are holdovers because their terms have expired. The terms of the other three members run out at the end of this month, and Mayor Peter Carlisle should be ready to act to keep the issue from being prolonged. He is allowed to fill temporary vacancies without City Council confirmation if needed to address the issue.

At the crux of the project dispute is the 100-foot shoreline height setback rule — a precious principle aimed at preserving open, public beach use — and Kyo-ya opponents contend the Diamond Head Tower should not be allowed to encroach into it.

Kyo-ya, though, maintains that its tower would be in setback compliance — if the state had replenished the beach’s sand as it had promised to do since 1965.

Kyo-ya attorney Barry Sullivan said opponents of the hotel’s proposal have refused to sit down and try to negotiate a compromise.

"There’s not a whole lot to negotiate," said Stuart Coleman of the Surfrider Foundation, one of the groups challenging the project.

Asked about the Diamond Head Tower’s stepped recess of the top floors, he said, "It’s still 26 stories."

The environmental groups contend that the zoning variance given to Kyo-ya would create a bad precedent, and they appear prepared to challenge the project in court, if necessary. Kyo-ya wants to begin construction in mid-2012 but a legal battle could stall it further.

However it unfolds, the city and its zoning appeals board should not prolong the issue but instead do their part toward a resolution, sooner rather than later.