The shah of Iran, facing an unprecedented revolt against his 37-year reign, appears to be on his way out as absolute ruler of this oil wealthy and strategically important nation of 35 million people.

That is the view being increasingly expressed in diplomatic circles here. There is growing doubt that Shah Mohammad Reza Pahlavi can survive his current crisis or work out a succession that would continue the 53 years of Pahlavi rule started by his father.

According to diplomats who have seen him recently, the shah is a broken man, given to periods of depression brought on by the bitter feeling of having been betrayed by his people. In a sense, they say, he already has abdicated his authority and no longer plays the same role in decision making that he used to.

By naming a military government this month to replace the embattled Cabinet of Prime Minister Jaafar Sharif-Enami, the shah has played his last card, political analysts say. They feel the move will not be able to reverse the situation, but only buy him more time.

"The military government is not a solution in itself, and it could be the beginning of the end," one diplomat said. "Personally, I think the Pahlavi dynasty is finished. It's only a question of time now."

Said another diplomat, "Now he's 59 years old, isolated, his back to the wall and cut off from the people."

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However, some of the shah's supporters say he is on the verge of acquiescing to a major reduction of his personal power and becoming a constitutional monarch - a move they feel could defuse opposition calls for his overthrow and allow him to keep his throne.

By agreeing to share power, the shah would pave the way for a national coalition government involving independent figures and possibly opposition politicians, these sources say. But it is not known whether even such a move - unthinkable only a few months ago - would satisfy the hard-line Moslem religious leadership that commands the most popular support in Iran.

The leader of the main political opposition group, the National Front, issued a statement Sunday refusing to join such a government under "illegal monarchical regime" and was promptly arrested.

In the meantime, according to a Middle Eastern diplomat who saw him recently, the shah seems "physically affected" by the mounting religious and political opposition to his once-secure regime.

"He seemed to have lost weight and to be visibly worried," the envoy said. "Our audience was painful because of long silences when no one dared to bring up the political situation. My impression was one of malaise and pessimism on his part."

Only a year ago, the shah was a completely different man. When he went to the United States in mid-November 1977 to visit President Carter, he was still in charge of the country. Only students ad intellectuals were openly protesting and they were larely complaining about academic matters and general lack of freedom rather than calling for the shah's downfall.

Then the country's influential Shite Moslem leadership erupted into open opposition in January of this year in the holy shrine city of Qom. Riots and shootings followed at frequent intervals in the following months, leading up to the imposition of martial law in a dozen cities in early September and the appointment of a military government Nov. 5 after the worst rioting yet in Tehran.

The result is that the only thing keeping the Shah in power is force of arms. But he really had no other choice. Virtually all sections of society except some elements of the upper classes have turned against him, including the large bureaucracy.

"Resorting to a military government is an admission of weakness," one diplomat said. "The army by itself is a dangerous source of support. It could become a double-edged sword."

The shah has always taken great care to ensure the loyalty of his officers and men. To prevent any one general from gathering too much authority, each branch of the armed forces is carefully segregated from the other s and reports separately to the shah.

The country's top military officer, the chief of the Supreme Commander's Staff, has no direct control over the army, the navy and the air force, but serves as the shah's principal military adviser. The current holder of the post is Gen. Gholam Reza Azhari, the new military prime minister.

THe loyalty of the shah's top generals and admirals is still beyond suspicion, but it is unknown what lower-ranking officers are thinking. With the likely prospect of more trouble ahead, there also are questions about how rank and file troops will behave.

Moreover, the shah could be weakening loyalties of top aides by willingness to sacrifice old and faithful servants such as former prime minister Amir Abbas Hoveyda and the secret police chief Gen. Nematollah Nassiri.

These and other concessions the shah has offered, including the release of more than 1,000 political prisoners recently and a promise of free elections next June, have done little if anything to appease the opposition. On the contrary, they only seem to have been taken as signs of weakness and accelerated cells for his departure.

Political analysts cite a sharp polarization in recent months as more of the shah's relatively moderate political opponents adopt the hard line - some reluctantly - of Ayatollah Rubollah Khomeini, the shah's most uncompromising foe living in exile in France.

Faced with this barrage of demands for his head, the shah has become something of a recluse and has abandoned much of his previous day-to-day control of the regime.

According to informed sources, there was a time not too many months ago when he personally directed police handling of opposition room at his palace. During the latest mob action he was well removed from any such efforts, the sources said.

In addition, the monarch has neglected major foreign policy decisions, which he used to regard as his exclusive domain. For example, diplomats say, in normal times he could have been expected to make statements on the Camp David agreements and the prospect of an oil price increase next year. The big question remains: "If the Shah goes, who will replace him and what kind of government will it be?"

It now seems clear that in its present mood the opposition - which seems to encompass a majority of the population - would not accept a transition of power to the shah's son, 18-year-old Crown Prince Reza.

The rallying cry of the opposition, whose diverse elements seem to remain united only because of their common emnity for the shah, if for "an Islamic democracy" to replace the Pahlavi monarchy. No one has explained what that means or how it would be achieved, but for many it does not really matter.

Although the army has restored order in the capital following the installation of a military government, political observers here see more trouble on the horizon. Order was also largely restored when martial law was imposed Sept. 8 on a dozen cities, including Tehran, but disturbances gradually escalated again until the latest military crackdown.

The next big oppostion push is expected to come in December, when devout Moslems mark the mourning month of Moharram.

Periods of mourning often have erupted into opposition violence this year as Iranians grieved over victims of police and army shootings.