The $10 million supercomputer sits unwanted on the floor of the Wisconsin factory of Cray Research Corp., its shiny skin removed and its high-technology innards used only to test replacement parts to upgrade other machines.

The supercomputer, designated No. 1205 by Cray, was built three years ago for the Indian Institute of Science in Bangalore. But the deal fell through in December, after India got tired of waiting for the Bush administration to resolve a two-year dispute over how to make sure the super-fast computing power of the Cray machine would not be diverted to make nuclear weapons and the missiles to deliver them.

Now Cray cannot find another buyer for the machine, which uses 11-year-old technology, because most institutions want more powerful, state-of-the-art supercomputers -- the fastest, most powerful class of computers in the world.

And India has built its own supercomputers, which are taking over its home market and competing with Cray around the world. India can use its homemade supercomputers without restrictions in its nuclear program and, if it wants, sell to nations such as Iran, Iraq and Libya, which have been suspected of trying to build atomic weapons.

The debate over the sale to India illustrates the stresses within the U.S. government over selling advanced technology products -- the country's edge in an increasingly competitive world -- while trying to keep a lid on the spread of nuclear weapons.

The debate was never resolved by the Bush administration, and now the nation's proliferation concerns are likely to run head-on into President Clinton's oft-stated objective of increasing overseas sales of superior U.S. goods in order to boost the economy and create high-skilled, high-wage jobs. In many cases, though, the nation's technological edge lies in advanced products such as supercomputers or aviation electronics that can be used equally for peaceful or military purposes.

"This is a horror story that hurts U.S. commercial interests and its nonproliferation concerns as well," Willard Workman, international vice president of the U.S. Chamber of Commerce and a former government specialist on export controls, said of Cray's Indian deal.

Despite the end of the Cold War, restrictions on technology exports have not eased as U.S. fears that the country's high technology would bolster the Soviet military machine have been replaced by concerns over the spread of nuclear weapons to nations such as Iran, Iraq and Libya.

Proliferation foes hailed the breakdown of the Indian sale as a victory.

"The fact that India had to develop its own supercomputer vindicates our policy" of making it difficult for that country to buy a Cray, said Gary Milhollin, director of the Wisconsin Project on Nuclear Arms Control, a Washington-based think tank. "Just because somebody can make a pistol on his own doesn't mean you sell him an AK-47 assault rifle."

India has steadfastly denied that it is trying to develop an atomic bomb, but it did unleash what it termed "a peaceful nuclear explosion" in 1974 that U.S. intelligence analysts said was a major step in an ongoing, clandestine program to build nuclear weapons.

Furthermore, as part of its space program, India is building and testing missiles that have the capability to carry an atomic warhead and the opposition Hindu nationalist party, the BJP, has declared its support for the construction of nuclear weapons to brandish against the neighboring nations of Pakistan, which reportedly also has a clandestine nuclear weapons program, and China, which already has nuclear weapons.

Cray officials said enough safeguards were built into the sale of supercomputer No. 1205 to make sure its powers were not diverted. As evidence, they point to articles in the Indian press last May that detailed how "American highhandedness" denied Indian aeronautical engineers access to the Cray computer bought by the weather service to track monsoons.

According to the Times of India report, scientists were turned back when they sought to use the supercomputer for "urgent calculations" needed for the development of light combat aircraft and surface-to-surface missiles.

Nonetheless, stubborn foot dragging by arms control specialists, egged on by nonproliferation forces outside of government, tied up the licensing process and in the end caused India to pull out of the deal.

"It was very painful for Cray to lose the sale," said Lisa Kjaer, director of international trade affairs in Cray's Washington office.

Cray still leads the world in designing and building supercomputers, but it faces increased competition from U.S. firms such as Control Data Corp. and International Business Machines Corp., as well as some Japanese electronic giants. Now, countries such as India and Bulgaria are succeeding on the less powerful end of the market.

"The notion that the United States is the only supplier of supercomputers went out with the buggy whip," Workman said.

Tired of fighting licensing battles in Washington, the Indian government appropriated $10 million -- coincidently the cost of the Cray machine -- to develop its own supercomputers. Within three years, Indian scientists succeeded in creating a supercomputer known as the Param. The latest model of the Param is 28 times more powerful than the Cray that India had agreed to buy, but far less powerful than the most advanced Cray models.

Among the 14 Param buyers are universities in Canada, Britain and Germany, as well as two research institutes in Russia that were attracted by Param's relatively low cost -- $350,000 compared with the $10 million price tag on a basic Cray model.

The Indian scientists developed their supercomputer by linking together as many as 256 small, readily available computers in a technique known as massive parallel processing. This allows skilled engineers to make machines far cheaper than the methods used by Cray and its Japanese competitors.

"The United States government essentially created competition for Cray and other U.S. computer makers," Kjaer said. "Why should the Indian government or an Indian company buy a Cray now when they can buy something that is cheaper, doesn't require hard currency and supports its high-technology development objects.

"Cray makes a superior product," she continued, "but it is not superior enough to overcome" India's anger over having to give up control over the use of the supercomputer.