Many of the workers came from the capital's own vast slums, but hundreds of Indians in the audience had traveled 40 or 50 hours on horseback, train and bus from as far away as the northern deserts of Mexico's Baja California and the jungles near Guatemala in the south.

They were construction laborers, small coffee farmers and tobacco planters of extremely modest means. Some 2,000, mostly community leaders, had come to join a handful of middle-class socialists.

For three days, these leaders of the small Socialist Workers' Party discussed ways of challenging Mexico's powerful political establishment that has ruled through the Institutional Revolutionary Party since 1929.

The group seemed remarkably unfazed by the problems that lie ahead. Beneath portraits of Marx, Lenin and Mexico's own revolutionary heroes, the leaders noted growing divisions within the country's "ruling cliques" and announced plans to exploit these differences by seeking their own legalization as a party.

Mexico's stable political system, long the envy of more volatile Latin neighbors, is showing signs of severe strain. And it is the government's recognition of this fact that explains why the Socialist Workers' Party and other opposition groups are currently permitted to organize without fearing the traditional repression. They are, in effect, officially encouraged.

Later this month, the 10-month-old administration of President Jose Lopez Portillo is expected to present legislation that will permit registration of new political parties for the first time in 22 years. Among those expected to be legalized are the Socialist Workers, the Communist Party and a small, virtually unknown group on the right.

They can obtain "definite" status by proving they have 65,000 members, drawn from at least half the states, or "provisional" status until they win a minimum for 1.5 per cent of the overall vote in 1979 congressional elections.

In the Chamber of Deputies, the opposition should control at least a quarter of the seats: the reform proposes to expand the membership to 400, of which 100 will be chosen on a proportional basis rather than in local constituencies.

The reforms are designed to channel Mexico's growing dissent along institutional lines and are particularly aimed at the left, which has a growing following among workers, peasants and students, but no voice in government.

"The coalition that holds Mexico together politically needs reshaping," an observer said. "It's becoming dangerous to have strong groups raising hell on the periphery."

Although the reforms are clearly aimed at assuring survival of the system, they are provoking conflict in the ruling party. While no one thinks any new party would be allowed to challenge it, old-timers feel that the opening up of the political arena is an invitation to chaos.

Actually, "Mexico's ruling party" strictly speaking is neither a party nor does it rule this country where presidential powers are almost absolute.

Launched in 1929, the party set out to provide a broad organization for the warring interest groups that won the revolution in 1917. It has provided a bureaucratic hierarchy not designed to compete with other parties but to control the country, a role which political analysts compare to that of the Communist Party in the Soviet Union.

Nevertheless, Mexico kept the trappings of democracy, with a Congress, elections and three opposition parties, two of which are financed by the government. The third, the National Action Party, which gets much of the protest vote, often charges fraud and stealing of ballot boxes in elections.

Last December, in Monterrey, Mexico's second industry center, National Action presented documentation that it had won the mayoral elections by carrying 358 of the 425 voting districts. The government chose to ignore this.

Amid such alleged frauds and charges of inefficiency and corruption, successive administrations have failed to offer a fairer share to the poor majority as the country's economy has grown. Disorders spread among the rural poor and guerrilla activity sprang up in the cities.

But how difficult it is to bring about peaceful change through broader participation became clear under the previous government of President Luis Echeverria, who relaxed political controls and, launched modest social reform. Rich and poor become so polarized that the reverberations are still felt today.

President Lopez Portillo has said in private that his administration may have the last chance to run the country through existing institutions. He has concentrated on conciliating interest groups and wooed businessmen and bankers to discourage their looking to the military for a solution - as some attempted one year ago.

The president has asked the left for time before further mobilization of workers and peasants.

Leftists have applauded the announced revisions while arguing that they enable those in power to "buy time" rather than bring social change.

"If the government manages to move the conflict into Congress, that will be an achievement in itself," said a Socialist.