Thirty-four years after one of history's more controversial air attacks, when U.S. and British fire bombing killed at least 35,000 persons here, this city still faces the dilemma of rebuilding: more apartments for the crowded populace, or Dresden's cultural hertiage?

The mood of Dresdeners, residents of a not very wealthy country, is reserved, with a sense of retreat by many into postwar materialism.

Among the 54o,000 population one encounters mixed feelings about spending massive sums to restore museums that hark back to a history of baroque beauty in the 18th century. Goethe called Dresden "the balcony of Europe."

Many seem to accept that special character of the city and support it. Others shrug that they have no say in such decisions anyway. One older member of the ruling Communist Party said he thought it was silly to rebuild landmarks that were almost totally demolished.

Much of the bitterness over the air raid seems to have faded with time. Many Dresdeners nod in agreement when it is suggested that the destruction was brought about by Hilter's policies and German bombing of other European cities. The mayor of the English city of Coventry, which was destroyed by Hilter's air forces in 1940, visited here last month-the two cities have formed a bond based on their common fate.

The most emphatic comments on the rebuilding issue come from young people and church-goers.

One church official said he felt the officially atheistic goverment had noticeably avoided rebuilding many of the churches. Hans Seidel, chief of city construction, acknowledges that at least three churches he knew of as a boy had not been rebuilt and only those potentiallu usable would be restored.

Student Klaus Roeser, 20, who lives with his parents and two younger sisters in a two-bedroom apartment, said he thought it was all right to spend money on the cultural restoration. A female student, who plans to marry next month, thought it was a waste. Every mark should be spent on providing housing for the population first, she said.

She must live either with her parents or her husband's in already small quarters. Crowding is a big factor in the high divorce rate, she said.

Although the rebuilding of Dresden started in 1946, and although the East Germans, without the help of any massive U.S. style Marshall Plan, have built some 80,000 new apartments here, a new plan laid out last month relfects the enormous amount still to be done.

The goal is to solve the housing problem by 1990. It involves building 90,000 apartments during the next dozen years plus modernization or reconstruction of about 30,000 older apartments.

Seidel says 16,000 families or individuals still neen housing in this city. It may be 1985, he estimates, before each family will have its own place to live and 1990 before all the living space will be up to modern standards.

East German officials are quick to point out that there are no slums or stifling poverty in their country as found in U.S. inner cities. But in Dresden, 30 percent of the apartment now in use were built before 1900 and many have no inside bathrooms.

Aside from the apartment construction, the East German government is putting about every sixth East German mark spent on construction in Dresden into reconstruction of the world-famous culturalon the banks of the Elbe River.

The Zwinger Museum, regarded as a masterpiece of early 18th century baroque architecture, was rebuilt and reopened in 1964. The famed Semper Galleru of old masters has also been restored and reopened. The Semper Opera House, a famed renaissance-style structure, still lies largely in ruins, although scaffolding has gone up around it and city councilmen say it too will be open in 1983.

The cost of the cultural restoration through 1990 is put officially at up to $450 milliion at oficially, and unrealistic, exchange rates. But officials seem to believe the costs will be higher. CAPTION: Picture, Women's Church is one of many in Dresden yet to be rebuilt as city sorts out priorities.