In the last 20 years, hordes of easterners moved here, building sprawling subdivisions with little green lawns, just like they had back home. These new pioneers were sustained by the same article of faith that won the West: the belief that the desert will bloom.

Now they're not so sure.

In Denver, and in cities throughout the booming Sun Belt and Rocky Mountain West, water is becoming increasingly scarce. Competition is escalating between cities and farmers, between different regions and states. Water, the foundation for economic growth in the past, is becoming the critical limit on growth for the future.

Nowhere are the politics of water more acrimonious than in Denver. For the past four years, debate has raged over whether to double the city's water treatment capacity with a new plant, dam and reservoir.

The fight over the so-called "Foothills complex" has pitted the city's business and political establishment against a coalition of citizen groups and environmentalists who say it would increase urban sprawl and aggravate Denver's air pollution, among the worst in the nation.

Since several federal permits are required, the Carter administration is confronted with choosing sides in a battle that crystallizes the fundamental issue of national water policy: whether to build more dams and reservoirs to augment supplies or whether to force conservation, using less water and recycling what we have.

President Carter is expected to announce a new water policy in a few weeks that will emphasize conservation and make it harder to build expensive, federally subsidized water projects. The Foothills permits decision, due next month, could become a test of the administration's willingness to implement such a policy despite strong political opposition.

Like many western cities - Los Angeles and Phoenix, for example - Denver sprouted incongrously in what was once called the Great American Desert. It gets little rain and must import much of its water from the Colorado River through enormous tunnels under the Rocky Mountains. Water comes from the brief spring's snow runoff rather than from rain, so it must be dammed and stored in vast reservoirs to distribute throughout the year.

The city's $1.5 billion system was built over the years by the Denver Water Board, a powerful group of five men, appointed by the mayor. In 1973, Denver citizens approved a $160 million bond issue which included the Foothills facility - 500 million gallons a day - and a related 243-foot dam on the South Platte River, southwest of the city.

The project required right-of-way permits over 38 acres of federal land managed by the Forest Service and Interior Department. Over the last four years, citizen protests have forced the agencies to rewrite their environmental impact statement three times, prompting the water board to sue the federal government for delaying the project.

"The only reason for Foothills is to allow people to splurge on lawn watering during a few hot summer days in the 1980s," says John Bermingham, a Denver attorney who heads the Water Users Alliance.

The Alliance and a coalition of 35 groups, including the Environmental Defense Fund and the League of Women Voters, say the facility would serve a peak demand which could be reduced through conservation. They call it but the first step in a billion-dollar expansion that would entail vast new transmountain supplies and the huge Two Forks Dam to be built outside Denver by the Bureau of Reclamation.

"Foothills makes possible unlimited growth," says Alan Merson, regional head of the federal Environmental Protection Agency. "But we've reached a point where we have to draw a line beyond which the city won't sprawl.

"Denver is getting to be unlivable. The air is dangerous. We can't allow subdivision after subdivision to spread like cancer. Yet the Denver Water Board is incapable of understanding spaceship earch - we are exhausting our resources on this planet."

To the water board, however, Denver's projected growth - from the present 1.5 million population to 2.35 million by 2000 - is inevitable. "I think the people who oppose Foothills are insane," says Charles Brannan, former U.S. agriculture secretary who serves as water board president.

"They've moved here and like it, so they don't want anyone else to come. But you can't stop growth. You can't put birth control stuff in the water supply."

Patricia Schroeder, Denver's Democratic congresswoman, says Denver can grow without vastly augmenting supplies if it conserves water through metering residences and building recycling plants.

"We live in the Great American Desert, but the lawns are greener in Denver than in Washington," she says. Average water consumption - 220 million gallons a day - jumps to over 500 million gallons on dry summer days, but drought restrictions last summer showed that Denverites could live with much less.

If meters were placed in the city's 88,000 unmetered homes, environmentalists say, experience in other cities show consumption would drop 30 percent. The water board is skeptical, and will install meters only if the federal government foots the $20 million bill.

Bound up in the controversy is the fate of Waterton Canyon, a beautiful mountain gorge 25 miles southwest of the city. The canyon, one of the last undeveloped recreation areas near the city, would be partially flooded by the Foothills complex, possibly harming its eagles, peregrine calcons and big-horn sheep.

But the dam that would flood the canyon requires a dredge and fill permit from the Army Corps of Engineers and EPA. Merson is opposed, and, if EPA headquarters backs him up, the project could be killed. However, Interior Secretary Cecil D. Andrus is thought likely to approve the permit for the right of way, thus leading to an agency conflict that might be finally resolved by the White House.

The Foothills controversy is part of a larger battle between eastern and western Colorado over the water in the Coloarado River. Seventy percent of the state's population lives east of the Rockies, but western town like Grand Junction, Vail and Aspen are growing rapidly, too. Western Coloradans have fought for decades against Denver's importation of their water.

"Transmountain diversion is robbing Peter to pay Paul," Aspen Mayor Stacy Standley complained recently to a Senate committee. "Further dependence on technologically indulged manipulation of a finite resource is sheer folly."

This issue of interbasin transfers is a central one for national water policy. Carter and Andrus have declared their opposition, but many westerners see tunnels, dams and long-distance water systems as the only hope for water-short areas such as Phoenix and Los Angeles.

Since Foothills will supply treatment capacity for water that Denver does not yet have, it "only makes sense when it is combined with massive projects to bring water from the western slope of the Rockies," says Merson. Thus, the dilemma for the administration: whether to interfere in what is basically a local issue, or to allow the stage to be set for the kind of federally subsidized water engineering it opposes.