The manual says there's a second option menu, only available during flight, that has difficulty settings. Why they didn't put it in with the rest of the options is beyond me. The joystick calibration is perfectly available on the carrier, for example.
I played this years ago. I believe I played the PSX version and was reasonably satisfied with it. Don't remember the difficulty, but I was a different gamer back then. Regarding WC in general - there's something about the original trilogy that gets me a bit more excited.