Iraq's neighbors and the United States are watching with concern two recent developments in this radical Middle Eastern country: expansion of its army and construction of a nuclear research center.

The expansion of the army coincides with an Iraqi drive to increase mechanization of its Soviet-supplied armed forces, officials here said. Moscow recently agreed to sell Iraq its latest IL76 military transport jet.Iraq has also ordered 36 Mirage F1 fighters from France and has expressed interest in the new Mirage 2000, sources said. It has also bought new tank carriers.

The nuclear research center, currently under construction by a French consortium on the outskirts of Baghdad, is said to be designed for peaceful uses. Diplomatic sources said, however, that the Israeli, Iranian and Syrian governments are concerned.

U.S. officials in the Middle East also have expressed some anxiety about France's apparent intention to supply highly enriched uranium, which can be used to make nuclear weapons, for a 70-megawatt experimental nuclear reactor to be installed in the $275 million project.

French officials insist that France has taken "all the necessary precautions" to prevent diversion of any materials for atomic weapons and that Iraq has agreed to U.N. International Atomic Energy Agency safeguards as part of the deal.

The French officials also argue that the sales of the research center and the Mirages are in the West's interest since they can help to wean Iraq away from the Soviet Union, which supplied this country with a small research reactor more than 10 years ago.

"We worked a long time on the safeguards and on the whole package of deliveries," said a French official familiar with the nuclear project. France has no intention of taking the slightest risk, and everything is covered by the IAEA."

U.S. sources in the Middle East said they believed the safeguards apply more to the "physical security" of the research center than to deliveries of highly enriched uranium.

Such deliveries, they said, would be a cause for concern under any circumstances, in view of the Iraqi government's support for radical Palestinian guerrillas and its hard-line opposition to Israel. Iraq, which has even rejected the Arab "steadfastness front" against Egypt as too soft, also has a long-standing rivalry with Syria and mutually suspicious relations with Iran.

Although Iraq has agreed to the IAEA safeguards, it has not signed the nuclear nonproliferation treaty. The Iraqi government has given no indication that it wants the atomic bomb, but suspicions linger.

"I'm sure they'd love to have one, and it just sends chills up and down my spine," one Western diplomat in Baghad said.

France and Iraq signed a contract for the largely hushed-up nuclear project in September, 1976.Construction of the research center near this ancient city on the banks of the Tigris River has been going on quietly since May, 1977, and is to be completed in spring 1979.

The project's backers charge that the concern expressed by Israel, the main opponent of the deal, is hypocritical since the Israelis are widely reported to have a nuclear weapons capability. Iran, these sources point out, is itself pushing a major nuclear energy program, including a French-built nuclear research facility at Isfahan.

On the military side, Israeli officials express growing alarm at the Iraqi creation of a 12th army division.

"This is a buildup which will be directed against Israel" an Israeli official in a neighboring country said. Iraqi troops who joined the Syrians in the 1973 Arab-Israeli war were a force to be reckoned with," he added.

With the development of Iraqi military transport capability, "at any crisis in the Middle East we may face three Iraqi divisions on our border plus air power, which is no joke," the Israel official said.

For the Iraqis, this feeling of menace is mutual. At a small remote military airport, in the desert near the southern Iraqi oil town of Basrah, now being used for internal commercial flights while the main airport is under repair, nearly full-sized decoy fighter planes are visible at one end of the landing strip, a sign that authorities fear an air attack.

"The Iraqis feel a long-term threat from Israel and a need to balance their other neighbors' military forces," a Western diplomat here said, "I don't think it's any secret that over the long term they also feel threatened by Iran," he added. I'm sure they've read "The Crash of 79' too. They see Iran's declining petroleum reserves and its increasing industrial and military capability, backed by the United States. Then they look at their own untapped oil reserves and it makes them feel uneasy."

Iraq ranks fifth in the world in proven oil reserves, just behind Iran and ahead of the United States. Its probable reserves are thought to place it second only to Saudi Arabia. Official figures on Iraq's oil wealth are a closely guarded secret.