“It’s just New York.”

Of all the insults to be hurled at the Knicks lately, this weekend’s slight by Jason Kidd cut the deepest. When the Nets’ leader was asked if he was excited about beating the Knicks, his answer reverberated across the Hudson.

“Why? They’re just another bad team,” he said. “It’s just New York.”

New Yorkers can handle almost any insult. But the self-image of the Knicks is that, love them or hate them, they’re the Big Apple and they’re a Big Deal. In fact, that was the exact reason so many pundits praised Isiah Thomas’s maneuvers when he first took over the Knicks – they kept saying he made basketball in New York matter again. A year later, the Knicks don’t matter. As Kidd said, they’re just another bad team.

Thomas helped make this mess, and now he has to fix it. It’s an orca-size challenge. Despite living in the cellar of the Atlantic Division, the Knicks are up to their ears in salaries, owing a record $110 million in contracts for next season. New York already has $86 million committed for the 2006-07 season, which is roughly double the current salary cap.

It wasn’t supposed to turn out this way. After Thomas acquired Stephon Marbury last season and picked up Jamal Crawford and Jerome Williams last offseason, the team was looking forward to a second straight playoff appearance. One New York Sun writer (who shall remain anonymous) even predicted the Knicks would win the depleted Atlantic division.

The sad part is, this wasn’t even an injury-plagued season. Marbury has played every game, and every key player except Allan Houston will hit the 70-game mark. The reality is the Knicks were just bad, led by two of Thomas’s most prominent acquisitions, Crawford and Tim Thomas.

Crawford immediately showed why the Bulls exiled him, displaying perhaps the worst shot selection in the league and swinging-gate defense. Tim Thomas made $12.9 million but didn’t earn one measly cent of it, sleepwalking through a horrendous start and briefly losing his job to second-round pick Trevor Ariza.

So the question is: How do the Knicks dig themselves out from years of rampant salary cap mismanagement? While fans always want to make lists of whom to trade, the first step is knowing whom to keep. Obviously, Marbury remains the centerpiece. Despite the Knicks’ struggles, he was the one man who prevented a bad season from being much worse.

Besides Starbury, three young Knicks showed promise: Ariza, Crawford, and Mike Sweetney. Although his defense still needs work, Sweetney has taken over the starting power forward job and shown himself to be an active rebounder and high-percentage shooter.

Ariza is less polished than Sweetney, but he’s only 20 and possesses outstanding athleticism. He’ll probably need to be an off-the-bench energizer for at least another year before he’s ready to be a quality starter.

Finally, as much as he drives his coaches crazy, Crawford’s talent is difficult to ignore. One hopes the next Knicks coach can put an end to the contested 3-pointers off the dribble and convince Crawford that he’s at his best going to the basket.

Everybody else is dispensable. The Knicks have two especially prominent pieces of trade bait: Kurt and Tim Thomas. Kurt is set to enter the first year of a four-year, $30 million extension that Isiah foolishly offered last summer, which makes trading him much more difficult. But there’s room to negotiate. Isiah could take back a contract that pays more annually but runs out sooner, which would put the Knicks in position to free up significant cap space in 2007. Moving Kurt would also clear out some of the logjam in the frontcourt.

With Tim, Isiah can take the opposite tack, again eyeing 2007. Tim’s contract expires in 2006, so Isiah could trade him for a slightly better player with a deal running one year longer. At least four players qualify: Toronto’s Jalen Rose, Miami’s Eddie Jones, and New Orleans’s P.J. Brown and Jamaal Magloire. One of the two Hornets would be the best option since either could fill the gaping hole at center.

One other Knick certain to be on the block is Penny Hardaway, who has been “injured” for the past couple of months with an ailment called wounded pride. Hardaway has one year left on his deal at over $15 million, but he’s a shell of the player he once was and yet still feels entitled to big minutes – when he suits up. That combo will make him very hard to move, but Isiah will try (probably in vain) to exchange him for a useful player with an ’07 expiration date.

After that, the draft becomes the key. The Knicks own four first-round picks in the next two years, and Isiah needs to resist the urge to trade them for immediate help. New York’s lottery pick this year should bring in a quality third guard – perhaps Illinois’s Deron Williams. As long as he has a pulse, he’ll be a major upgrade on what passed for guard help this year. Isiah has shown good talent evaluation in past drafts, so there’s room for hope.

If Isiah follows this plan and targets getting under the cap in 2007 (when some guy named LeBron could become a free agent), it will likely mean that the Knicks will struggle to reach .500 the next two seasons. But in the long term, the team could build on a strong existing nucleus with four first-round draft picks and oodles of cap space to woo LeBron or another star player.

That would mark a sea change for an organization that has always relied on deep pockets to bail itself out, only to find itself sinking faster. New York has stubbornly resisted the need to rebuild, but it’s time to take the medicine. The sooner the Knicks swallows that bitter pill, the sooner they’ll get better.

And if they don’t? The losing will drag on in a series of 33-49 seasons, in which unimpressed opponents will leave Madison Square Garden week after week uttering that most dreaded insult: “It’s just New York.”