The mayor looked to the ocean. His gaze took him across the blankets, across the beach coolers and umbrellas, across the radios and the crowds and the girl kids and boy kids, racing around, kicking sand on prone parental bodies, squealing and tumbling into the water.

Menace, in any form, seemed far removed, but Mayor John Hughes was holding forth on "the gay problem." Since he broached the subject at a homeowners meeting this summer, Hughes has been fending off the news media from Manhattan to Malibu, both the straight and gay press, on his "cause for concern" and what he intends to do about it.

"Gays are advertising Rehoboth as Fire Island South. That runs counter to the traditional values of Rehoboth. Rehoboth is a family place. The average citizen is not yet ready for two guys holding hands and kissing on the street," says Hughes. "I don't give a damn what the Constitution says. It's still a visual shock . . ."

Last weekend the relative handful of registered voters (1,535) among Rehoboth's summer population reelected Hughes overwhelmingly in an election in which the extent and future of homosexuality in this beach resort, if not the major issue, was at least the most visible.

Hughes insists he is no homophobe. Says, in fact, that Rehoboth can absorb small numbers of homosexuals. What he is against, he says, is gay proliferation. In the past few years, there has been a noticeable influx of the gay community. In a special Rehoboth issue, Washington's gay paper, The Blade, featured the following established bars and restaurants as places to go: the Blue Moon, Astral Plane, Cafe des Artes, the Back Porch, the Renegade and Nomad Village, and noted that three more restaurants and bars were this year's "newcomers" -- the Palms, Tijuana Taxi and Crystal Forest.

"I'm going to operate within the law, I'm not for selective enforcement of laws to discourage gays, but when gays advertise this place as a gay place, I want you to know there is at least one member of the community," says Hughes, pointing to himself, "who will fight that. If you think I'm going to welcome gays in with open arms, I'm simply not.

"A family place," he emphasizes. "That's where the bread and butter is, now and in the future. They may promote it as a chic community. I'd rather stay a little corny. I'm not sure I know what chic is, but if that's what it is, maybe I don't want it."

Many straight businessmen and Rehoboth habitue's disagree with Hughes. They say gays are good for business and have brought in haute cuisine to compete with fried chicken and hard-shell crabs. But Hughes adds, "I don't give a damn if another gay guy comes into this place. I think we're a helluva long way off from a real problem, in terms of numbers, but there is a perceived problem. It's constant cocktail party conversation."

Conversation at Rehoboth this summer, as elsewhere in the nation, also includes the nervous concern among both gays and straights about AIDS, and its association with the gay community.

So what, everyone now asks, can Hughes do about "the problem"? The answer is very little, except to counter with his own family rhetoric. "If I have to chase a greased pig down Rehoboth Avenue to establish a Norman Rockwell image, I'll do it. I'd probably try to spend money promoting Rehoboth as a family resort to counter that gay image ." Hughes used to think that the bandstand entertainment -- with its share of high-tack tap dancers and singers -- was "pure corn pone." Now, says the mayor, "I kind of like it. It's attracting a very nice, middle-class, conservative crowd."

Hughes, 6 feet 6, blond and 44, is employed by the State of Delaware's Division of Soil and Water Conservation, when not talking about gays, which is all too often for him these days.

In last Saturday's election Hughes' opponent, appliance store owner Bill Thoroughgood, took the high road on the gay issue, more or less. "Some say they don't want them here, but you're not going to keep them out if they want to come," he said. Editorials in the local paper, The Whale, admonished the voters to stick to the real problems at hand -- parking and sewage.

Hughes, however, had his hands full with the press barrage.

"A gay reporter interviewing me said, 'You have beautiful legs.' I said, 'Thank you.' So much for being a macho man," adds Hughes proudly. "I accepted it as a compliment." Where the Boys Are

. . . More gays are choosing Rehoboth over Fire Island or Provincetown since this Delaware town is accessible to more major cities, is more affordable, and promises a special Gay experience. -- The Blade

It is 5:30 p.m. on a sunny Saturday and the Blue Moon's 4 to 6 p.m. happy hour is awash with men -- men with short-cropped hair and pastel T-shirts, men laughing and smoking and drinking on the deck that spills out of the bar. The Blue Moon, once a run-down rooming house on Baltimore Avenue, is a blue and white restaurant that even the mayor would define as chic, with Art Deco touches, a handsome archway and pricey vittles like veal medallions sauteed with ginger, lemon and Dijon cream, $18. While the bar caters almost exclusively to gays, the dining room is often dominated by straight couples -- moneyed urbanites who populate places like Rehoboth's North Shores. The back patio, which one recent night featured a guitarist, a smoky '50s-style cafe singer and a tap-dancer, often mixes the two crowds. Other restaurateurs, like those who run Cafe des Artes and the Palms, hoping to appeal to both gays and straights with money to spend, say they were inspired by the success of the Blue Moon, begun five years ago.

There are two gay beaches in Rehoboth, one at the north end, one at the south. The north end is part of Henlopen State Park, outside of Mayor Hughes' jurisdiction. The men who go there seem to be more flamboyant than those at the south end, eyeing each other, sometimes holding hands and frolicking in gangs in the water. "There is hard-core sexuality going on in the dunes," says the mayor. Unmindful of the "Death to Fags" graffiti scrawled in orange paint on one of the beach's abandoned World War II watchtowers, gay men parade in twos and fours on what had once been a sparsely populated stretch of beach favored by joggers, fishermen and solitary readers.

Between the north and the south ends are several miles of heavily hetero beaches that include flocks of families and hand-holding teen-agers. Then a beach stroller suddenly notices a shift. Here is no woman's land -- a strip about the length of half a football field filled with men. Many gays here say they segregate by choice ("I just feel more comfortable with my own people," a tanning Baltimore tax consultant said, sitting on the blanket with one of his housemates and a friend). Other gays in Rehoboth say they wouldn't be caught dead on the gay beach, preferring to mix in with others.

On weekends, the landmark gay disco, the Renegade, is filled with gyrating males. The Renegade features a stockade fence and round-the-clock security since it was burned down a few years back in a still-unsolved arson attack. (Some say it was revenge from another gay bar, some say it was rednecks on a spree.) On a busy Saturday, the Renegade draws a thousand drinkers and dancers at a $5-per-person minimum. Fear

What the mayor stirred up this summer is something more than cocktail talk. Hidden and complex fears, perceptions and misperceptions surfaced in both gays and straights, with most people uncomfortably requesting anonymity. Some Rehobothites are furious at the press for what they consider unfavorable publicity. Others said they barely give the gays in their midst a thought, while still others are furious at the mayor for bringing up what they had been whispering about for months. One gay Baltimore lawyer laughed and said, "The mayor brought all this on himself. Gays from Oshkosh who never heard of Rehoboth are going to want to come now."

And AIDS, acquired immune deficiency syndrome, the frightening, fatal disease most frequently linked with homosexual men, further complicates attitudes. One wealthy young Rehoboth woman with many gay friends heatedly defended their right to be in Rehoboth, then added anxiously, "I just don't want their AIDS."

While medical experts stress that the AIDS virus cannot be transmitted through casual contact, many gays in Rehoboth's summer crowd nonetheless say they fear a backlash because of AIDS. Tacked on the bulletin board at a Rehoboth fitness center frequented by straights and gays is an article emphasizing that you cannot get AIDS from swimming or bathing contact.

In fact, some gays sense a movement toward quieter spots like Rehoboth because of their own aversion to such high-promiscuity places as Fire Island. Says Washington florist Alan Woods, a frequent Rehoboth beachgoer, "Fire Island doesn't have the appeal it used to since AIDS. It's so expensive and there is such a fast crowd and the attitude is you're supposed to go out and have sex a lot."

The attitude about gays among summer people and year-round residents in Rehoboth ranges from hostility to tolerance to friendly acceptance. Yet deep down, most straights say they would not like to see them in far larger numbers. They agree with Mayor Hughes' unspecified "trigger point": when the proportion is noticeable enough to make straights feel like uncomfortable aliens. You won't hear that for attribution from businessmen who, both straight and gay, seem caught in a bind.

"If you say 'gay-owned' that will discourage straight customers," said one restaurant owner who happens to be gay. "If I say anything about gays I might lose their business," said a restaurant owner who happens to be straight. He adds, "We really don't want to be known as the Gay Capital . . . We don't want to be number four on the list: Key West, Fire Island, Provincetown and Rehoboth! We don't deserve that."

But another businessman, Jay Stein, president of Stuart Kingston galleries, which deals in precious stones and oriental rugs, gave another prevalent point of view. "I feel strongly that the fact that the gays have come here, set up shops and restaurants, has given Rehoboth a degree of sophistication. Everybody has his own niche here, and they just add to a good mix of people."

In January, there are 3,000 hearty Rehoboth residents. In July, about 50,000 tourists descend on a weekend. For those not doing business with tourists, antipathy toward gays can sometimes be the small-town grumpiness of seeing their world overtaken every summer. "Tourists are nameless, faceless people the locals don't like," says Trish Hogenmiller of The Whale. "If it's gay tourists it's even easier to register this anonymous resentment. They also resent that they can come in their BMWs and Mercedes, buy up a house, fix it up cutesy, jack up prices, and the locals have to move out to Nassau Trailer Park."

Despite all the talk, it is possible to hit the boardwalk, the french fry emporiums, T-shirt galleries and family-style restaurants and never see anyone displaying the "trademarks" of homosexuality. The numbers are impossible to gauge but estimates by both straight and gay visitors and businessmen rarely place the gay visitation at Rehoboth above 10 percent, or 5,000, of that weekend horde. Gays seem to disdain the boardwalk crowd that includes everything from Disney-esque families to beer-bellied, tattooed characters who could have stepped off the set of "Deliverance."

Billed as the Nation's Summer Capital, Rehoboth is no St. Tropez -- but it is no Atlantic City either. It prides itself on a quieter, more tasteful ambiance than nearby Ocean City. There are the Your-Hot-Tub-or-Mine swingers, but there is also a disco that caters only to teen-agers and zealously keeps out the booze. There are sophisticated urbanites who think nothing of plunking down $300,000 for beach homes that sold for a small fraction of that price a few years ago and there are trailer park habitue's. And there are bastions of the past like Henlopen Acres, the protected province of country club old-liners; men who wear lime-and-pink-plaid slacks, women who wear golf skirts with ducks on them.

For a bigoted few, the gays are just another minority to discourage. Years ago, there were restricted neighborhoods that prohibited selling to Jews. "Can you imagine what would happen to them if gays tried to move in en masse?!" asked one Rehobothite. And to this day, say two longtime Rehoboth businessmen, they know of not one black property owner within the city limits of Rehoboth.

But for many more, the subject of gays stirs up anxieties that most cannot even define. 'Contagion'

While many Rehobothites, both summer and full-time, say they have no problems personally with the beach's gay population, a hesitancy arises when they begin talking about their children. Some parents fear a prevalence and possible glamorization of the homosexual life style further complicate the already difficult years of adolescence.

"I didn't want my son working at a gay restaurant this summer," said one mother."He's at the stage of forming his own . . . sexual feelings -- and it's confusing to teen-agers. There is a questioning about it all."

The same woman, however, says she is "more than comfortable with my own thoughts on gays. For instance, I find the behavior at Fran O'Brien's on a Saturday night more distasteful than what I've seen in gay bars. It's a meat market where guys walk in and a half hour later has a hand up some cutie's leg and is going home with her for the night. That's not offensive?"

Jan Zarevicki of Newark, Del., swings his toddler son into the water near the south gay beach. "If he were 14 I wouldn't want him in this area," says Zarevicki. "I lifeguarded here 10 years ago and it wasn't as prevalent. They were not as much out of the closet. There wasn't the communal effort to identify with each other. Something seems unnatural about homosexuality. So a 14-year-old boy at this part of the beach?" He shakes his head. "He's just discovering his own sexuality."

Experts like Dr. Judd Marmor, author of "Homosexual Behavior," emphasize "unless there is a genuine predisposition a boy is not going to become homosexual by associating with or seeing gay people . . . One of the most dangerous myths is that it's contagious."

Another myth, say experts, is that the obvious homosexuals who cruise the streets for multiple partners are the norm. Such views came up often from straight men regarding gays at the beach. A Washington lawyer who asked not to be named said, "To my way of thinking their sexual acts are perverted. It may not be their fault, but they parade themselves as being normal. I don't mind their having their rights, but don't try to push it off as really lovely."

Mayor Hughes recognizes that there has always been a small collection of gay homeowners and that they and the new businessmen and most gay tourists cause no trouble.

"At the same time," he says, "there is a gay subculture I don't like worth a damn." He talks of those who were "drilling holes in the men's room walls . . . The guy that was killed advertised for younger boys on the men's room wall." (Of the handful of murders in Rehoboth in the past several years, two have involved homosexuals.)

Rampant promiscuity is "only true of a small percentage of homosexuals and certainly it's less true now because of AIDS," says Marmor. "The majority of gay males want a single relationship, but of course if it doesn't work out it's much easier for them to find partners. But that's a male attitude. A lot of straight males would not be any less promiscuous if they could walk into any bar at any time and pick up a pretty girl and have sex."

One Baltimore lobbyist and gay activist visits Rehoboth frequently with many gay friends who are doctors, lawyers, government workers and teachers. Just as some blacks disdained the most militant among them in the '60s and some feminists abhorred the most strident feminists, many gays wince at the sight of exhibitionists and the flamboyantly sexual among them, for enforcing the stereotype. They stand out, especially on the streets of Rehoboth.

"The public perception of us is always the extreme, the limp-wristed screamer, and that is certainly heightened by the AIDS scare," said the lobbyist. "Sure, the gay life style lends itself to more sexual contact than the straight -- but one of the reasons we created this life style is that there are no rewards and incentives for living a traditional life style. You can't put your lover's picture on your desk at work. If you're a teacher there are all kinds of fac,ades. Gays use sex as approval, but most are not, by any means, wildly promiscuous. Fire Island South?

"We're enormously outnumbered," says Gus Dimillo, who works at the Astral Plane, a funky restaurant with purposefully high-camp decor -- lace on the piano, shawls draped all over, Joan Crawford's picture on the piano. "It just happens that a number of us are entrepreneurs and professionals," who are highly visible in Rehoboth. He hoots at the idea of Rehoboth becoming a Key West, where he has also worked. "Forget it. This whole place is populated with middle-class Americans." Like many others, Dimillo enjoys Rehoboth for its quietness. They themselves seem unpleased by the thought of Rehoboth becoming overset in gays. "There are a higher class of gays and straights here."

Jimmy Peterson of the Renegade says as long as the money is green, no one he deals with in Rehoboth cares about the sexual preference of his customers. "Everyone is very receptive to us entrepreneurs with gay customers and I don't think out-of-town straights give a damn about 'the problem.' "

Like all other gays interviewed, one Baltimore lawyer sees Rehoboth in no danger of being a Key West.

"Key West was always the end of the road," he said. "You'd have to have a mass exodus of families for that to happen.

And, Peterson adds, "If all the gay owners pulled out of town, the mayor would be left with his 'high-class' T-shirt factories."