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What Simon knows, and the rest have yet to discover, is the magnitude of Jack and his gang's savagery. When he says "...maybe it's only us that we're afraid of” he means that maybe we know that there isn’t a beast, but it’s easier to fear the beast than it is to face the reality that we’re actually afraid of each other.
Simon is trying to convince the boys that they do not need to fear the beast. Simon knows that Jack created the beast to make the members of his gang fearful. By instilling fear, Jack tries to make himself out to be a better leader than Ralph by offering his protection from the beast.
Essentially, Simon is referring to the fact that the real danger on the island is not the so called "beastie" but the innate evil that lies within the boys themselves. While the boys excuse their actions by blaming their fear on something imaginary, the real danger on the island is the boy's potential to be evil. Simon, the most spiritual and odd of the boys, gets this, while the other boys really don't.
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