President Suharto set the stage yesterday for his reelection to another five years in power with a heavy show of force and a stounch defense of his recent crack-down on the Indonesian press and student protestors.

Appearing before the opening session of this nation's people's consultative assembly, which is expected to reelect him, he made it clear that his 12-year-old regime will not tolerate dissent that "could create chaos in the community that might result in disturbances to national stability."

Criticism will be tolerated, but only when "presented in reasonable proportions, not through the spreading of rumors and slander," he said during a 3 1/2 hour speech.

On the surface, Suharto has uncontested control of the political situation here as the 920-member assembly begins its two weeks of sessions, held once every five years. He has no opponent for election and the small non-government parties do not regard themselves as opposition.

With the army sending armored ears and truckloads of troops on patrol through the city, he seems to have kept the lid so far on sporadic student demonstrations that have disrupted universities.

But even as the assembly was convening, troops were dispersing students protesting against Suharto's government in the heart of Jakarta by firing submachine guns in the air.

Their protest is indicative of the strong undercurrent of dissatisfaction with government corruption and repression of free speech. This unrest has deepened following Suharto's harsh suppression of the students and the press since January.

"It's really a crisis of confidence," said one Western diplomat. "If unrest gets out of hand people will say 'Suharto is shaky and maybe we should get a new man. Indonesians prize harmony above all else. So he has to show he can smooth things out.

"The government's attitude reflects the Javanese belief that the mandate of heaven is on the one who by example and persuasion gathers a consensus," he added. "If he has to go out and fight his enemies, he isn't very good."

Ironically, Suharto came to the force backed by an alliance of the army and the young following an abortive Communist in 1965. He gained full authority in March 1966 when the military compelled the late President Sukarno to transfer key political powers. The so-called supersemar declaration became the basis of Suharto's political legitimacy.

A taciturn career soldier, he has never been a charismatic figure. Instead he offered discipline and planning, qualities Indonesians welcomed after the chaos and decay of the Sukarno era. He talked of 25 years of controlled development under army leadership to make Indonesia a modern nation.

The current assembly is an important stage in that process for Suharto, a watershed that will shape the nature of Indonesian politics into the 1980s.

After 12 years in office, Suharto, 56, has made it clear his next term will be his last. He is understood to want to consolidate his achievements to establish his place in Indonesian history. He is also said to want to end corruption.

Many of his younger supporters had hoped he would bring some new blood into his Cabinent to reach his goals, and attempt to end the Malaise into which his government has fallen in recent years. But, according to reliable sources, he has rejected this idea.

"He is telling people, "This is my last chance. For that reason I have to have my real friends, my strong military friends, beside me to give me a real chance," one source said.

The assembly began yesterday, however, with an apparent rebuke from Suharto to longtime vice president, Sultan Hamengku Buwono of Jogjakarta, who at the last minute announced that he would not accepted another term.

In a statement released just hours after Suharto's speech extolling his government's economic advances the sultan said he was retiring because of failing eyesight.

He added that another factor was his wish to serve the country further which, he could only do if free of "the official hindrances inherent is my position as vice president," he said. This passage may feed rumors that the sultan has grown disillusioned with Suharto.

Picking a suuccessor to the sultan will be ticklish for Suharto. But the most delicate issue the assembly is expected to face is one almost impossible for Westeners to understand - drawing an official distinction between "religion" and "belief in God."

At issue is an attempt by the Suharto government to continue to maintain a line between "mysticism" and Islam, Indonesia's established religion. Moslems bitterly oppose this.

The crucial point, according to one senior government adviser, "will be asserting that belief in God is as important as religion. By that we mean the Semitic religions which have Korans and Bibles, and the oriental religions that existed here before them which have no books, no prophets."

Suharto's election is expected to come March 22, the day the assembly adjourns and goes home for another five years.. With 61 percent of the seats occupied by his direct or indirect appointees and [WORD ILLEGIBLE] percent of the remaining elected seats occupied by the army and his party, there is a little chance of serious challenge.

Meanwhile, the military will attempt to keep student demonstrators under control. Yesterday's disruptions were confined to guerrilla style demonstrations by younger students.

At one point, they entered the giant Senen Market complex in downtown Jakarta and started breaking windows before they were dispersed by troops. Three hours later, youth struck at the city's main bus terminal, tying up city traffic before troops arrived, firing into the air.

The tension over the government's activities has been building since Jan. 20 when it closed down seven major newspapers and security agents stormed universities arresting student leaders. The newspapers have reopened, but report little or nothing about politics.

Students have continued to demonstrate and criticize the immense wealth Suharto's relatives have accumulated since 1966, often through monopolics and other privileges granted by government departments. Their publications have labeled Suharto's wife "Tante Sun" (Aunty Sun) after a popular song about an elite matron and her business deals.

Academic life had been disrupted at the nation's three most prestigious universities. At Jogiakarta's Gajah Mada University, troops broke up a student meeting, putting at least six students in hospital and shutting down lectures for a week.

Student's at the Bandung Institute of Technology were shut off their campus by troops after they declared a strike, and most have not even registered yet for the academic year due to start earlier this month.

At Jakarta's University of Indonesia, students holsted a black flag mourning the "death of Indonesian democracy" last Saturday and have been on strike since Monday. Troops have made several raids to tear down posters and break up meetings.

Special correspondent Hamish McDonald contributed to this report.