"Bang, bang." An Indian woman in the crowded marketplace leaps back in wide-eyed horror as a news vendor, selling tabloids to people never taught to read, acts out the headlines, shows the pictures. "Bang. And that's how they shot the priest."

Another political murder in Guatemala; such stories are familiar. Here in the Quiche Indian region, where leftist guerrillas have stopped up their activities in recent months and often indiscriminate retaliation by the government has terrified many villages, such acts are especially commonplace. Political violence has been a fact of life and assassination a regular way of death in this country for decades.

The Carter administration had hoped to help end the repression that State Department officials fear ultimately plays into the hands of radical Marxist revolutionaries. But the killing has risen dramatically over the spring and summer.

Different organizations keep differing body counts, like clerks logging debits and credits, trying to determine who is killing whom and to what ends. But there is no doubt that hundreds of people -- students, politicians, professors, priests, businessmen, military leaders and union organizers have died since the beginning of the year at the hands, of left-wing and right-wing extremists.

The U.S. ambassador, Frank V. Ortiz, attempted through quiet diplomacy to persuade the government of Gen. Romeo Lucas Garcia to curtail its part in the killing. "I've tried very hard to end the violence here," Ortiz said recently. But he has failed and now, after less than a year in his post, Ortiz is being removed, reportedly because his superiors think he has been too conciliatory.

There is little reason to believe that his replacement will make more headway, however, and some observers are concerned that a "get-tough" U.S. posture will only provoke more intense right-wing violence.

Already, according to informed sources, the Guatemalan government has hinted that it may oppose the planned appointment of current U.S. Ambassador to Chile George Landau. Because Ortiz, at least within U.S. human rights circles, is considered soft on the military, the Guatemalans believe Landau is being sent here as a human right activist, although he has never been particularly known as such and is considered within the State Department to be a middle-of-the-road professional.

There are rumors circulating among Guatemala's conservatives that Ortiz is being removed to make way for a coup, similar to the one that took place last fall in neighboring El Salvador, which would attempt to meet leftist demands for reform while excluding the radical left from power.

Violence here is not simply a matter of left against right, reforms versus reaction.It grows out of the complexities of this racially and culturally divided society, and out of a long history of gunslingers connected with government, Machiavellian plots and personal power plays.

Just over half of Guatemala's population is made up of Indians, most of whom live in villages like Chichicastenango, enveloped by a multitude of distinctive cultures dating back milleniums before the Spanish conquest. They have the most illiterates and are the poorest and most exploited of Guatemala's 7 million people.

Leftist revolutionaries have been attempting to win the Indians to the cause of insurrection with some success over the last year, but it is a slow process that could lead to prolonged war before there would be any chance of toppling the conservative regime in Guatemala City.

The other half of the society is made up of urbanized whites and those of mixed blood much closer to the seat of power. Among them, the killing is more selective, more publicized and, if it erupts in a major revolutionary movement, more likely to bring immediate radical change.

While many sincere reformists seek a major liberalization of the society, there is also a tradition dating back to least 30 years of gunmen who have used to climate of political insecurity to build personal power bases, often by working with or in the government.

"What this is is Chicago in the 1920s, that's all," said one Guatemala City businessman, alluding to the days of Al Capone. "We've got people to the left and the right, but it comes down to what I have in my pocket.

"You see late-night movies where you bring the marshal into town to wipe out the bad guys," the businessman continued. But here, once you've gotten rid of the bad guys, how are you going to control the marhsal?"

For now, at least, there seems little likelihood of an answer to that question and the solution being advocated by many conservative Guatemalans is simply to put in a tougher marshal.

Many are looking toward Mario Sandoval, leader of the right-wing National Liberation Movement -- which reportedly has a private army of 5,000 men -- as a candidate for the job. Others favor former president Carlos Arana, who led a bloody campaign to eradicate leftist guerrillas in the 1960s.

Elections, often subject to heavy influence by the military, are scheduled for 1982.

"My greatest immediate fear," Ortiz recently wrote to Secretary of State Edmund Muskie, "is not so much that the far left will take over Guatemala any time soon, but that the most retrograde elements on the right will unleash an even greater wave of terror.

"Guatemala," said Ortiz, "is a bloodbath waiting to happen."

Few people here believe it will wait much longer.