MOST STRIKING at first is the isolation, geographic of course, but also political, social and in many ways cultural.

I realized how far the Iberian peninsula was from the major cities of the continent--24 hours from Rome after winding by train along the Mediterranean coastline, entering the tiny border town of Port Bou. It was what James Michener once called "land's end, the western promontory of the European continent." Geography has shaped this region's culture and emotions for centuries.

Cut off from the rest of the continent by the Pyrenees mountains, the Iberian peninsula offers a time capsule glimpse of Europe as it once was. The Portuguese coastline, particularly in the southern Algarve region, is relatively uncluttered by seaside resorts and Holiday Inns. The ancient cities of southern Spain stand untouched by time, like Seville with its Moorish castles and winding streets too narrow for cars.

The people, too, who shared my train compartments or pensiones, prepared meals or sold fresh fruit at the open-air markets, exuded the genuine warmth and openness, chivalry and sexism, that seemed more characteristic of a time long gone. At the same time, the new government has meant new freedoms and increased exposure to another world, the world of blue jeans, American and British rock 'n' roll, drugs, even pornography.

That dichotomy, old world values coexisting with the new, accounted for much of my initial attraction with Iberia. After a week in Paris, where trendy Anglo-Americanization is prevalent in everything from disco music (French "rap" being the latest craze) to fast-food joints, the Iberian peninsula seemed, at first, a welcome refuge from the modern world.

From the old world, Maria--"Senora," as we called her--was the short, plump and round-faced matron of the Casa Huespedes Mari-Luz, a $4-a-night hotel near Barcelona's Plaza San Jaime, frequented by American packers and the "Let's Go Europe" set. I discovered the Mari-Luz through an American on the train, who was just passing through the city on his way south. He in turn had remembered the Mari-Luz from a visit the year before. Maria, to his surprise, remembered him.

"You must be tired!" she exclaimed, her face exploding into a powerful grin. She had accurately assessed the toll of our grueling day-long train trip. Maybe it was the smell. In any case, she took the bags (she was obviously stronger than the two of us), came back with towels and marched two weary travelers directly to the showers. My friend, an American student studying in Seville,, protested that he was not checking in, but just passing through on his way to catch a night train. None of that, she insisted in rapid-fire Spanish, no night trains without a hot shower and a meal, free-of-charge.

Maria was a Spanish mama, in only the most affectionate sense of the word. Her warmth made me want to stay in Barcelona. She reminded me that the "Fiesta de la Madre" (mother's day) was coming up soon, and showed me the gift she had bought for her own mama, a shiny pair of black patent leather shoes. I bought my own mother a gift at a nearby souvenir shop. She approved, then brought me brown wrapping paper and scissors and made me sit down at the kitchen table to prepare my gift for immediate mailing.

Maria, to me, was old world in her charm and her outlook. She called her guests "chicos and chicas," her boys and girls, who, of course, slept in separate rooms. She didn't give guests the downstairs key to get in; instead, she asked what time they would return and waited up to open the door.

What a contrast those old-world ways are to the peninsula's relatively recent and rapid jolt into the 20th century after decades held in check by the conservative, rightist dictatorships.

The five Madrid high school boys who boarded the train with us in Madrid were "modern" in every sense of the word. They passed the time on the cross-country trip to Barcelona teaching me Spanish profanities and offering their opinions on music. "Heavy Metal!" the chubby one would shout, and begin playing a rough lick on his air guitar in the cramped compartment. "Led Zep-e-lin!" another would add, as his choice for the world's best band. "Pink Floyd," the older brother countered. They all had tickets to Madrid's summer concert by Jethro Tull.

"What about Spanish music?" I asked. "Aren't there any Spanish singers you like?" Moans and chuckles. "Julio Iglesias?" the chubby 16-year-old suggested sarcastically. "Abajo!" he said, pointing thumbs down.

Barcelona, the closest major city to the rest of Europe, is logically the most Europeanized city in Spain. As a first-time visitor entering Spain from France or Italy, making Barcelona my first stop minimized the culture shock. The entry into the Spanish way of life became more gradual.

Barcelona exudes a cosmopolitan flair I wouldn't see in other Spanish cities. The chic pastry shops and restaurants are more reminiscent of France than Iberia. While most shops still close for the traditional two-hour siesta in the middle of the day, many--especially the larger stores--stay open. The red light district flourishes near the Ramblas, a busy main avenue..

But it is in Madrid, the capital city where the societal changes--and the strains they have caused--are most prevalent. The spacious plazas that characterize the unhurried pace of the country are now dwarfed by high-rise office towers and encircled by four- and six-lane boulevards. The Plaza Mayor may still be the center for sitting and watching a slow-paced city amble past. But, as in some other cities in Europe, the outdoor cafes are sprinkled with souvenir shops with the telltale "Kodak" signs out front.

Spain has long been a lure to expatriots following in the footsteps of Hemingway. Lately, the crowd drawn to Spain seems more burned out than literary. For example, take George. I met him when he invited us to dine with him one night, then revealed at the dinner table that he didn't have enough to order anything for himself. Being either good sports or suckers, we paid for George.

A rail-thin, blondish, working-class lad from the London suburbs, George, who couldn't remember if he was 30 years old or only 28, had been living in a $4-a-night dump for three months. He told us the story of how he landed in Madrid:

There were no jobs in England, he explained. Of course, for a foreigner, there were no jobs in Spain either. But Spain was more lenient on hash smoking. "I'm addicted to hash," he said matter-of-factly in a cockney accent. "I spend all of my money on hashish." And Spain is close to Morocco, which is really lenient on hash smoking. George made a lot of weekend trips to Morocco. During the daylight hours he taught English to children, but he thought he might lose his job for showing up stoned too many times.

Spain's post-Franco liberalization has brought about other unexpected sights:

* The life-size erotic billboards of porn movies. SUPERORGASMO! shouts the movie marquee on the Gran Via.

* The brown-uniformed police officers who, guarding against the marked increase in terrorism, openly brandish machine guns while guarding the entrances to all public buildings. (There are no lockers at the Atocha train station because of the bomb threats, I was told.)

One measure of a society's advancement, I was told by a Canadian woman friend, is the level of liberation accorded to women. And women's liberation can be measured unscientifically in the height of the heels on women's shoes.

Using that unlikely barometer, I began to take note of how most Spanish women still walked on high-stacked and spiked heels, and how almost all wore dresses--not sundresses, not summer skirts, but very dressy dresses. There were few pants, or jeans, which no woman wore in public during the Franco years..

Men's clothing was equally conservative. Most older men wore dark suits and ties, even on Sunday afternoon family strolls. Young men were dressed more casually, but even they appeared more dapper--and with shorter, more neatly trimmed hair--than their shaggy and shabby European counterparts.

But Spain, I was told by one Spanish host, cannot be compared with other European cities when measuring its advancement. Spain is still far behind. The New Spain must be looked at in contrast to the Spain of Franco. Viewed against the backdrop of her own past, the country has pushed defiantly forward, with a vigor that is startling.

That became evident in the music. During a midnight walking tour of Madrid's deserted streets, my Spanish guide pointed out the Plaza Mayor as the site of free summer jazz concerts. But that is only recently, he hastily added. Such music used to be prohibited, back when there were no free concerts.

The observation was telling. I had heard it before, just a week earlier in Portugal, when I attended a Dexter Gordon jazz concert at the University of Lisbon. The man seated next to me, a bearded university student who had fought the colonial war in Mozambique, told me how much he liked American jazz. "Before the revolution," he said, "jazz was prohibited here." The zealous left-wing army officers who overthrew Portgal's dictatorship on April 25, 1974, had liberalized music.

I asked the young man if he liked Fado, the traditional, rather depressing sounding Portuguese wail. The student grimaced. "I hate Fado," he said. "I like jazz." His thumbs-down gesture was similar to that of the high school boys on the Spanish train, who preferred Pink Floyd to Julio Iglesias.

Though Spain and Portugal are distinctly different, their development has been shaped by many of the same forces.

Both countries have developed in emotional as well as physical isolation from the rest of continental Europe. Both countries have always looked primarily south, to Africa, and west to the Americas, where they set sail to conquer the oceans and expand their empires.

In one sense, Portugal can be called the extreme of Spain. If Spain is indeed "marginal Europe," as it has been called, then Portugal is even more so. Even today, Portugal is moving more slowly, more reluctantly than Spain into the modern world.

I noticed, too, that Portugal, more than Spain or for that matter any of the European countries I had seen, had opened her arms to African immigrants, who now seem to make up a large percentage of the population. Portugal, in fact, seems to flaunt its "African connection," almost as if recalling a bygone era when the nation led the world in the exploration of faraway lands. Museums, particularly in the Algarve region, are well-stocked with art and artifacts from Angola and Mozambique. Just a few years ago, African immigrants--estimated by one source as high as 300,000 after the 1974 coup, caused a severe housing crunch in Lisbon, and many tourist hotels were temporarily converted to public housing.

One who came in that wave was Carlos, the Angolan disc jockey in Lagos who made his fame and fortune in his new home spinning the platters at the Golfino Hotel on the beach in the Algarve. "Portugal is good for black people," he told me. "Black, white, it makes no difference here." Carlos invited me to the hotel, a modern plastic white structure with potted palms in the lobby and rooms overlooking the beach. The Golfino was one of Lagos' new tourist resorts, catering to British and American tourists.

Carlos liked to begin his set with a few Jamaican reggae tunes, but found few takers. Then the strobe lights began, Rod Stewart's "Tonight I'm Yours" blasted through the speakers, and the dance floor was packed. In many ways the Algarve, with its influx of visitors, is arriving into the modern world with more vigor than Lisbon, the capitol city.

Madrid already has a high-rise skyline and traffic congestion, but Lisbon seems bent on resisting urbanization. Office towers have popped up on the Avenida do Liberdade on the edge of the city, but the center of town, near the Rossio plaza extending to the waterfront, has remained remarkably untouched.

That mixture of old and new has made the Iberian peninsula one of the most attractive "budget" vacation areas. The traveler can still find the living past, the unspoiled charm and beauty of Europe as it was before neon and McDonald's. But the rush to change has brought all of the requisite conveniences for travelers--including the ever-popular discos and, of course, the golden arches.