It was standing room only on Saturday night in the vast indoor cycling arena in San Serbastian as the extremist Basque nationalist coalition party, Herri Batasuna, reached its climax. About 7,000 fanatical supporters shouted: "Independence! Independence!"

During the clamor, two hooded men appeared at the top tier of the stadium holding up a placard identifying them as members of the Basque terrorist organization ETA. The slogans then switched to "Long Live ETA -- The people are with you."

Sunday morning, the stadium had been hired by the Spanish Socialist Party. Txiki Benegas, 31, a native of San Sebastian and leader of the Basque Socialist, passionately cried out at the meeting, "Enough of bloodshed. We don't want any more deaths. We are not afraid of ETA."

But Benegas and his party played to a hald-filled stadium, although the crowd contained Socialist supporters from all over Spain.

With regional Parliment and government elections set for March 9, Basque terms, in on the side of the angels and who is a voice crying in the wilderness.

All sides agree that the election is one of the most crucial in Spain's still young election of a regional assembly and a test case of Madrid administration's delicate efforts to centralize an area where terrorism and government political errors have exacerbated local feelings, making self-determination an election issue.

Madrid government circles express fears that a majority vote for Basque nationalism could trigger a series of events aimed at secession.

In a pointed reference to Basque secessionist feelings, Defense Minister Augustin Rodrigues Sahagun said, "Should the day come when the armed forces have to carry out their constitutional mission and defend the independence, sovereignty and unity of Spain, we have units already ready and prepared.

Xabier Arzalluz, 48, the president of the powerful Vicaya Province branch of the Basque Nationalist Party is candid about the specter of military intervention. "Every time the Basques progress [toward self-government] the ghost of the military appears," he said.

For Arzalluz, whose party is expected to get at least 30 percent of the vote with other nationlalist parties garnering as much as 25 percent, there can be no going back on an agreement to the three Basque provinces. This was endorsed by referendum Oct. 25.

"If Madrid tries to force us into compromises, they will only trip themselves," he said."We shall see what happens if there is a military occupation . . . If they think they can frighten us, they are wrong."

Francisco Letamendia an extremist-leader of Herri Bastasuna, is just as forthright: "A military occupation would advance the national consciousness of the Basques."

Arzalluz's uncompromising mood is undoubtedly shared by the Basque Nationalist Party, which has been the arbiter of Basque politics since the turn of the century. Under its leadership, the Basque provinces became an autonomous region during the republic of the 1930s and fought a hopeless war against Gen. Francisco Franco's insurgents until the German Luftwaffe bombed the historic town of Guernica and Bibao in 1937.

Under Franco, the Nationalists maintained a government-in-exile in Paris and secretly organized. After Franco's death in 1975, the party picked up where it had stopped -- at the top.

The war of nerves between the government in Madrid and the Nationalists is over how much self-government the Basque region is entitled to.

Conflict is inevitable as legislative bodies in Madrid overhaul the Francoist system. Legislation from Madrid impinges on the agreement thrashed out in the self-government negotiations. The Nationalists are campaigning on the platform that only a strong Basque nationalist majority in the 60-seat Basque Parliament to be elected March 9 will ensure that Madrid does not tamper with Basque right to self-administration. Only "Basque parties can solve Basque problems," the nationalists proclaim.

Other Basque parties are also campaigning hard. At a political rally in Bilbao, a leftist coalition caled Euskadiko Ezkerra drew thousands of supporters with a strong nationalist platform including demands unacceptable to the Madrid government, among them the release of about 150 Basques convicted of terrorism or awaiting trial.

With all available space in every town crammed with party posters and every meeting hall fully booked for political meetings, the tension of the campaign is increased by the effects of more than a decade of violence in this region.

Police present either a high or low profile. In some cases they use armored cars and intensive road blocks, while at the U.S. consulate in Bilbao they report for guard duty in jeans and change into their uniforms and produce their automatic weapons.

Economically the Basque country appears to be on the road to ruin. Bilboa and the surrounding province of Vizacaya now have a jobless rate of 11 percent, one point above the national average. In 1975, it was the richest per capita province in Spain.

Most indicative of the general disenchantment is the 40 percent abstention rate predicted in an election with so much to be the potential voters for the national parties -- the governing centrists and the Socialists.

"They've left the field to the Basque parties to fight it out among themselves," one observer said. "Nobody wants to be accused of being anti-Basque in these circumstances."