Space Fear

Published in Astounding Science Fiction, March 1951. Reprinted as The Illusionists in the Andre Norton edited Space Police in 1956. Collected under its original name in Agent of Vega
Now a full-fledged Zone Agent, Pagadan is sent to the Ulphi system where the millions of inhabitants are being secretly controlled by a powerful telepathic weapon which has instilled in them all a dreadful fear of leaving the planet. Pagadan must find the person who has now set himself up as the unofficial dictator of that world.