The turn-of-the-century stone arch that marks the entrance to the San Giovanni mental hospital bears no sign and is hidden by a sharp turn in the winding highway that, overlooks this sprawling Adriatic port.

Inside the rambling grounds there is a deserted atmosphere. Narrow roads wind aimlessly downhill, the ivy-clad buidlings resemble many an American campus. The hospital's central office is housed in a shuttered three-story building that evokes images of creaking floorboards and rattling chains.

"I believe the present aura of abandonment here is a very fitting sign of what we are trying to do," says Franco Basaglia, one of Italy's most controversial psychiatrists.

Earlier this year, Basaglia announced that San Giovanni which he has run since 1971, was going out of business. In the future, he says, most of Trieste's mentally ill will be reintegrated into daily life. Instead of commitment to a mental institution, they will receive aid and assistance at home and additional treatment at five local community centers.

A "first" for Italy, and a rare experiment for Europe, the projected dismantling of the Trieste asylum has received paeans of praise from some and bitter criticism from others.

Michele Zanettl until recently the president of Trieste province, says the new experiment may mean the first real treatment for many mental patients.

"The mentally ill will now be treated in the context of their own family and environment situation," he says. "Before they were merely segregated, shut up in an institution that gave them no alternatives, no hope."

Others disagree. A well-known analyst based in Milan who did not want his name used said Basaglia's decision to release mental patients was "dangerous" and "irresponsible."

A water in a portside seafood restaurant said Basaglia was "nuts to let a bunch of loonies loose," and a hospital staff member reported calls from the relatives of many patients asking that their kin not be released.

But for Basalia and his team of psychiatrists, health assistants and social workers, the shutting of the hospital is the culmination of 16 years hard, often lonely work.

A black-haired man with craggy features and mournful dark eyes, whose sing-song Venetian accent leaves no doubt about his place of birth, the outspoken Basaglia, 53, has often gotten into the news and sometimes into trouble.

Since his 1961 appointment as the director of the psychiatric hospital in nearby Gorizia, the psychiatric has been waging an almost single-handed battle against the aemnicomio (mad house) as a "repressive" and harmful institution.

First in Gorizia, later in Parma and most recently in Trieste he has systematically eliminated barred windows, straitjackets, padded cells and other traditionally "violent" methods of dealing with the mentally ill.

He has also progressively reduced the number of his hospitals' patients San Giovanni had 1,268 in 1971 and has only 123 today - and he has introduced more creative activities like jazz concerts, airplane excursions and art exhibits open to the public.

Basaglia admits that many past experiments, like a well publicized 1973 theatrical production starring a blue papier-mache horse were designed to attract attention.

Some of his operations have led indirected to skirmishes with the law. In 1973, he discharged a patient who later killed his parents. After a stormy [WORD ILLEGIBLE] . Basaglia was acquitted. A humbling murder of threegendareses in Gorizia led to rumors that the killer was a violent patient and that Basaglia hospital was an illegal arms cache.

Basaglia sees most of the attacks against him as a sign of widespread resistance to the transformation of modern-day Italy's mental institutions, notorious for their old-fashioned methods, poor sanitary conditions and inadequate care.

Recently, a woman patient in a Naples hospital was burned to death because she was strapped to her bed in an unattended ward. In another mental institution, in Bisceglie in southern Italy, a record number of 206 patients died last year.

Convinced that "mental illness is primarily maladjustment that can best be treated within the patient's own social context." Basaglia is attemtping to replace coercive techniques with preventive help on the neighborhood level.

The five community medical centers that so far have been set up on an experimental basis are run by teams of psychiatrists, nurses and social workers. Each has a clinic, recreational areas, overnigh rooms for persons needing emergency assistance and a kitchen that turns out dozens of meals each day. So far, says Basaglia, they have been handling about a thousand patients a month.

Antonia, 64, recently moved into one of the "communes" set up by the province for ex-inmates with nowhere else to go. Her commune was in a downtown apartment shared with four other former patients.

"The nightmare is finally over.No one can know how happy I am," she says. Her personal nightmare was 25 years in San Giovanni, where she was sent with a serious case of depression after her husband's death.

According to Basaglia, the overall success of the five-year-old program is largely attributable to the changing attitude of the Trieste citizens. He was particularly enthusiastic about a local cab driver's tolerant reaction when a San Giovanni patient asked to be driven to Beirut.

"By humoring the man and driving him around the post area the cab driver was provding local treatment." Basaclia said proudly.

"It was a heartening sign that our work is having a considerable impact," said a psychologist from one of the centers. "But now the traditional hush-hush- attitude of Italians toward mental illness appears finally to be giving way."