The isolated mountain kingdom of Nepal will vote for the first time in 21 years next month as its Harvard-educated ruler, one of the world's few remaining absolute monarchs, has decided to share some of his power.

With the fall of the shah of Iran imprinted on his memory and students marching in his capital, King Birendra Bir Bikram Shah Dev. 34, decreed last year that Nepal's 7.2 million adults should be allowed to pick the country's national assembly.

It is still unclear, however, just how much power the king will allow the assembly to have after the May 2 referendum, in which the country will decide whether political parties, now banned by the king's constitution, should be allowed.

"If he tries to hold power by arbitrary means, the chances are the king will lose everything, said one well informed Pepali who supports the monarchy and talks of Birendra as "my king."

"But he stands to gain much for himself and his family if he goes ahead with opening up government," continued the Nepali.

As of now, all sides in the campaign support the institution of the monarchy, which is looked on as the most stabilizing factor in a country that until 1950 was closed to the outside world and where transportation is so primitive that distances are measured by days it takes to walk rather than miles.

While the United States has little strategic interest in Nepal -- a kingdom the size of Tennessee squeezed between India and China, the two most populous countries in the world -- diplomats here fear widespread unrest could further harm stability in the region.

"It could be like Afghanistan," said one senior Western diplomat. "The United States had no real interest until the Soviets moved in. If some neighbor tried to take advantage of instability in Nepal, the U.S. might have to take sides, and that could be very difficult."

The mountainous country is so rugged and communications so primitive that government officials estimate it will take seven or to 10 days to count the votes. Many boxes will have to be carried down from mountain villages on porters' backs.

Nepal is one of the most beautiful countries in the world and is also one of the world's poorest, with a percapita income of $110 and a life expectancy of slightly more than 40 years. About 80 percent of its 13 million residents cannot read.

Until the present King's grandfather restored the Shah dynasty to power in 1950. Nepal was isolated from the rest of the world with virtually no roads, schools or medical services. In 1951 it had a national budget of $8 million.

While the referendum next month will decide only whether political parties will be allowed, it is widely interpreted here as a vote of just how democratic Nepal should be and how much power the king should be willing to code to an elected legislature.

And while Nepal has not had much experience with elections, the citizens are taking this newest exercise in politics so seriously that several violent incidents have been reported.

Prime Minister S. B. Thapa narrowly escaped injury last weekend when a crowd pelted his car with rocks after he had addressed a rally near here. Earlier in the campaign, a communist politician had to run miles for safety after enraging a crowd.

A vote for political parties, is viewed as support for wider democratic rights and a constitutional monarchy while opposition to political parties is seen as an affirmation of the present system of advisers to the king who are elected indirectly.

"How much power the king gives depends on how much popular support the multiparty side [favoring political parties] gets. If we win big, he has to cede power. But if we win marginally, he has an excuse to say there is opposition to the idea of political freedoms, and he will be justified in doing so," said B. P. Koirala, the leader of the group fighting for the political parties.

Koirala, 66, was prime minister of Nepal's only elected government, which was disbanded after two years by Birendra's father, King Mahendra. Koirala was arrested and sent into political exile.

The other side, which favors a continuation of the nonpartisan government, is composed mainly of members of local district and national panchayots -- the bodies of indirectly elected officials who govern locally, serve as advisers to the king and hold government posts.

If their side wins, they are expected to continue to hold power. They favor a more active role for the king than do Koirala's forces.

Government officials are campaigning for the antiparty side. Prime Minister Surya Bahadur Thapa said in an interview that he tells voters across the country of the gains made during the past 19 years under the panchayat system he now heads, including development of a political consciousness to the point where Nepal now has a solid base for some form of democracy.

But he added that it would be unethical for him to tell people how to vote.

"I am trying to help them decide for themselves," the prime minister said, "but I am not telling them to vote for this or for that.

There have been charges by the profaction of corruption by the present government, including the selling of timber for export to raise money for the political campaign. These charges, published in newspapers here, have been denied.

"People are edgy. They think the police are supporting the panckayat side," the side opposed to political parties, a Koirala worker said.

Both sides are claiming the support of the king, who has maintained public neutrality in the campaign. But he has met with political leaders and Koirala said at his session the king pressed him hard for details of his program.

Koirala, 66, is the closest thing Nepal has to the loyal opposition. He reminds people at all his rallies that he is the first and last prime minister ever picked as a result of an election.

He was arrested when the previous king banned political parties and has spent the last 19 years in political exile or in jail. Yet he remains loyal to the country and the monarch and said he has "developed a great affection" for King Birendra.

It was Birendra who ordered Koirala released from jail and sent him to New York with his own money to have the first of two life saving throat operations.

The operations have left Koirala's voice thin and raspy, but he commands rapt attention when he addresses a rally. A 20-minute speech takes its toll on his voice, however, and he can barely be heard even with a microphone at the end.

Except for children, most of the crowd at a recent rally in Dhulikhel, 17 miles east of here, seemed to be paying attention.

Man after man -- and one woman -- extolled the virtues of political parties and blamed the present panchayat system for the poverty and lack of development in the country.

One speaker, Kathmandu lawyer Daman Khungana, joked about the panchayat's official color of yellow -- important as an identifying symbol since 80 percent of the Nepalese cannot read.

Yellow, he said, is the color of jaundice, of disease, while the political party's color of blue stands for peace and prosperity.

No one is sure what will happen after the May 2 referendum. The king has promised a new constitution and is reported here to have close advisers working on drafts.

But Manmohan Adhikari, leader of the Chinese wing of the Communist Party and a key figure in the pro-party camp, has called for election of an assembly to draft a constitution rather than have it handed down by the king.

In any case, it is clear there must be a second election to pick members of the national assembly the king has promised.

There are predictions of unrest no matter which side wins. If the proparty side wins, there is expected to be jockeying by politicians who until now have had no chance of power. If the panchayat side wins there will likely be widespread charges of election rigging.

"There will be a lot of trouble with the multiparty in the beginning, but you can't postpone freedom," said one well-informed Nepalese political observer. "If the multiparty side wins there will be chaos, but if the panchayat wins there will be revolution."

The side favoring political parties appears to have widespread support in Nepal's new urban areas -- Kathmandu and its neighboring cities of Patan and Bhaktapur -- and among the educated and student classes who are dissatisfied with the present unrepresentative rule.

The other side appears to have support in the mountainous areas in the west, where there are few roads and villages tend to believe the king does not want political parties.

The political ferment started last spring with student disturbances in which at least a dozen persons were killed. The unrest spread from Kathmandu into other areas.

Some sources believe the King was pushed into scheduling the referendum by the student unrest while others believe he favored opening the country politically and used the demonstrations as an excuse to make his move.