The smell of unwashed bodies wafts from the windows of the Venezuelan Embassy here. The faces that peer between fingerspread Venetian blinds are unshaven, their eyes red-rimmed.

It has been eight days since nine armed miltants forced their way inside and declared Ambassador Santiago Ochoa, three other Venezuelan diplomats and four local employes hostages of the Popular Revolutionary Bloc.

A few miles, on a busy street toward the center of the city, French Ambassador Michel Dondenne and five others have been held by 16 Bloc members under similar conditions for more than two weeks.

The French Embassy is located in a fortress-like building, above a jewelry store. Only occasionally can one get close enough to see Dondenne wave wanly from a second-floor window.

The Bloc, a peasant-student coalition that El Salvador's military government has labeled subversive, has demanded that the government release three Bloc readers from jail in exchange for the hostages. The government has repeatedly said it does not have the leaders, never arrested them and does not know where they are.

Based on past experience with people who have "disappeared" here, many informed observers believe the Bloc leaders were arrested, and the government simply refuses to admit it. Some speculate that this may because they are dead.

The situaion, therefore, could go one of several ways.

The government could decide to blast its way into the embessies and "rescue" the hostages, a messy alternative that few consider viabl.e

The government could admit to having, or having had, the leaders in custody - should that be the case - and offer to make a deal with the Bloc.

The Bloc, having made its point and gotten a lot of international attention, could simply give up, as it has in a number of past embassy occupations. The embassy of Costa Rica, which was occupied May 4 along with the French mission, was abandoned within fice days, with the Bloc militants inside flown to asylum in Costa Rica.

But the duration of the current occupations and the lack of progress in resolving them, has begun to make those involved in the negotiations nervous.

For most people in this sundrenched, volcano-ringed capital, life seems unaffected by the small dramas at the two embassies. If anything, the usual downtown din of traffic appears heavier than usual.

The congestion is in part due to the Bloc's occupation of the city's main cathdedral. Although some cleanup attempt has been made, the steps of the cathedral are still stained with the blood of 25 people who were killed by government troops during a May 8 demonstration in support of the Bloc sit-ins. The government said the troops returned sniper fire, although numerous witnesses said the killings were unprovoked.

Inside the cathedral's massive wooden doors, about 15 young and ostensibly unarmed students sit around on the pews, give interviews to visiting journalists, and occasionally walk out to the front steps, behind locked gates, to deliver militant speeches or sing revolutionary songs to crowds that gather in the square across the street.

Since the May 8 shootings soldiers are rarely visible in the area, although uniformed riflemen sometimes peak out from behind gargoyles on the roofs of surrouning buldings. Police cars and trucks filled with heavily armed troops occasionally drive around the square, scattering the crowd.

The cathedral is one of at least a half-dozen churches in and around San Salvador occupied by Bloc members. Archbishop Oscar Romero, a strong government critic, last week issued a statement noting that "sufficient reasons exist to believe" that the three Bloc leaders were arrested as the protesters insist. He offered the government a way out by suggesting it "admit that subordinates committed the abuse of detaining or assassinating them."

The archbishop's office keeps voluminous statistics on alleged human rights violations here, including a current list of 122 Salvadorans who have disappeared and a region-by-region chronicle of abuses of military power.

In the 10-village area of Cinquer, a region of particularly heavy activity northeast of the capital, for example, church records note 52 house-to-house military searches of entire villages, 15 deaths and 72 arrests or disappearances in the past year.

Asked about the alleged human right abuses, which have been documented in reports by British and U.S. rights agencies and the ORGANIZATION OF AMERICAN STATES, President Carols Humberto Romero complained at a news conference Friday thah "The terrorist forces have the freedom to judge and punish whomever they want. The authorities are expected to stand by with their arms folded."

Last week, at least five members of the armed forces were murdered here, allegedly by members of the popular liberation forces, one of three Guerrilla groups.

The government maintains that tge block is simply an arm of the popular Liberation forces and if therefore will not negotiate with those holding the embassies. The block, however, describes itself as a nonviolent movement dedicated to opposing repression and improving the lives of El Salvadoe's poor. It says it has been pushed to take extreme measures.

Even the many moderate political and social groups that support the goals, if perhaps not the methods of the block, now voice concern at the length of the embassy occupations and increasingly bleak prospects for a peaceful outcome.

Archbishop Romero has called on the block to surrender the embassies, and other observers worry that the more militant student groups of the block coalition appear to be controlling things with little particpation from the peasant organizatoins.

Both the French and Venezuelan governments have sent high-level diplomats to negotiate with the block.

Much of the negotiating apparently concerns conditions inside the captive embassies. It reportedly took a French envoy several days last week to persuade the block to let ambassador Donnenne appear at the window and speak.

Although the milliants inside the embassies are known to be armed, and the hostages obviously are not free to leave, block negotiator Anna Maria Gomez, 23, Maintained Thursday, that "We have not kidnapped anyone."

"They may consider themselves prisoners, butwe don't consider them prisoners," She said. "They are our security."

water and electric service has now been restored to the French embassy and both sides are believed to have telephone contact to their negotiators via a monitoire line.

Although the french can only be yelled at fromthe parking lot below the Embassy windows, Ambassador Ochoa regularly shakes hands and converses though the blinds of the Venezulean Embassy, avilla-like building in a residential neighborhood.

While soldiers haveblocked cars at both ends of the street with twigs and branches, the stay out of view of the Embassy windows. Foreigners, although not Salvadorans, are allowed to approach.

A knock on the window brings one of theyoung Block members inside to pull apart the blinds.

"We don't have much to do in here," The young man said yesterday. "Mostly we talk about politics and read. They have a nice library, and we're learning a lot about Venezuela."

Although Ochoa reported early last week that the militants had turned over their ammunition to him in a "Gentlemen's agreement," he now refuses to talk about whether they're armed.

The Militants, he said, brought their own food, and Embassy wives deliver groceries to the hostages daily. Since the Venezuelan Embassy was occupied by the Block a year ago and Salvadorans on the political law often come here seekingAsylum, Ochoa said yesterday, "We were somewhat prepared" with extra sofas and materesses to sleep on. CAPTION: Picture, A Venezuelan emissary in San Salvador, left, confers with Venezuelan Ambassador Ochoa, who is being held hostage.