BE35 PLT EXPERIENCED NMAC AT 1500 FT INBOUND TO PAO. SUSPECTS ATC REVERSED IDENT OF 2 INBOUND ACFT.

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I WAS APCHING PAO FROM THE W; RPTED SLAC (APPROX 6 MI W) AND WAS GIVEN INSTRUCTION TO SQUAWK IDENT AND ENTER L TFC FOR RWY 31. IT WAS AN EXTREMELY CLR SATURDAY AFTERNOON WITH CONSIDERABLE TFC IN THE PATTERN AND APCHING PAO FROM BOTH THE E AND W. ON THE WAY IN FROM SLAC; ABOUT 4 MI W OF PAO; THE TWR INFORMED ME I HAD TFC; A CESSNA AT 10-11 O'CLOCK POS. I COULDN'T SEE IT; AND TOLD THE TWR 'NO CONTACT.' I WAS THEN ASKED TO SLOW DOWN; AND DID SO. SHORTLY; MAYBE 1/2 MIN LATER; I WAS TOLD I WAS STILL GAINING ON THE CESSNA AND TO SLOW DOWN FURTHER. I RESPONDED THAT I WAS AT 80 KTS AND STILL DIDN'T SEE THE TFC. I WAS THEN TOLD TO MAKE A R 360 DEG TURN. ABOUT 150 DEGS INTO THE TURN; I FOUND I WAS NEARLY HEAD-ON WITH A CESSNA; PERHAPS 25 FT ABOVE. I SHARPENED MY TURN AND PULLED UP UNTIL THE STALL WARNING SOUNDED. THE CESSNA DID NOT APPEAR TO TAKE EVASIVE ACTION. IT SEEMS MOST LIKELY THAT THE CTLR HAD MISTAKEN OUR IDENTITIES. I NEVER SAW ANY TFC AHEAD; AND MUST HAVE BEEN IN THE 10-11 O'CLOCK POS OF THE CESSNA. MY SLOWING DOWN ONLY REDUCED THE SEPARATION. HAD THE CESSNA RPTED SEEING ME; OUR IDENTITIES COULD HAVE BEEN CORRECTED. FROM THE TWR'S VIEW; WE WERE BOTH APCHING FROM THE DIRECTION OF THE SUN; AND I SUSPECT THEY DIDN'T HAVE VISUAL CONTACT; BECAUSE A CESSNA AND BONANZA ARE EASY TO TELL APART. I KNOW THAT PAO HAS A BRITE RADAR THAT THEY USE SORT OF UNOFFICIALLY. THEY REQUEST YOU TO SQUAWK IDENT; BUT NEVER ISSUE 'RADAR CONTACT.' ASSUMING THEY WERE USING IT; THE LACK OF ACFT IDENT MAY HAVE LED TO MY GETTING A DANGEROUS INSTRUCTION TO TURN BACK INTO A FOLLOWING ACFT. PAO IS A BUSY PLACE; BUT ALL PLANES MUST HAVE MODE C XPONDERS; AND THE TWR HAS RADAR. MY HUMBLE SUGGESTION IS THAT LCL CTLRS; AT VFR ARPTS WITH RADAR; BE ALLOWED TO ASSIGN SQUAWK CODES TO PLANES IN OR NEAR THE CLASS D AIRSPACE TO AVOID THE DANGER OF MISIDENT. I'D SUGGEST USING CODES 1201-1207 WHICH WOULD BE EASY TO SELECT.