High in the Central American cloud forest a fog-damp Union Jack waves above this ragged outcropping of rock at the southwestern corner of Belize -- the last British colony on the American continent, the largest crown colony left in the world.

This is a peaceful place, for the moment, but with Belize moving toward independence this year and revolutionary turmoil spreading throughout Central America the long-quiet provinces of what was once called British Honduras could become yet another flash point of international conflict.

A handful of fresh-faced young British soldiers peer through high-powered binoculars across the border into Guatemala. There is a main road there and a barracks full of Guatemalan troops.

The Guatemalans know the British are here. The British want them to know. The flag and the supply helicopters are constant reminders. The men here in the fatigues of the Queen's Regiment and the 2,000 other British troops stationed in Belize, armed with the most sophisticated weapons the pound sterling can buy, are all that can keep Guatemala from using its 14,000-man army to assert its centuries-old claim on this Connecticut-size strip of mountains and swamps.

The 145,000 people of Belize know this, and as the colony moves toward independence Belizeans find themselves in the uncomfortable position of wanting to have their own country while praying that British troops will continue to protect it.

"I flourish in the shade," says the motto on the Belizean flag, and there is considerable fear that if the protection shade of British might is withdrawn Belize might have difficulty even surviving.

Security is the key issue in the independence debate raging here. With Belize's own Defense Force only two years old, numbering at most 600 men and not expected to grow much over 1,000, there is just no way this country can defend itself militarily.

Either the British will have to stay, or Guatemala will have to back off.

Britian's Conservative government, spending an estimated $50 million a year to protect Belize, cannot be relied on to keep its troops in place indefinitely. No guarantees have been made past Belizean independence.

One opposition party leader in Belize went so far as to say the British are rushing the country toward independence because "they want to get the hell out."

Britian and Guatemala recently held talks in New York in an attempt to settle the dispute. But few Belizeans expect them to be successful. Both Belizean political parties have vowed not to give up an inch of territory from "the proud Rio Hondo to old Sarstoon" -- as the Belizean anthem delineates the national boundaries.

The Guatemalan constitution bases its claim to Belize on Britain's alleged failure to uphold all terms of the treaty with Spain under which it obtained the territory. Guatemalan maps include Belize as part of the country, and Guatemalan sovereignty over the territory is an article of faith taught in Guatemalan schools. The slogan "Belize is ours" adorns the Guatamala City airport.

There is little room on either side for serious negotiating.

Besides its old claims, Guatemala has new fears of Belizean independence. With guerrilla activity spreading throughout their country, Guatemalan leaders are concerned that leftist insurgents may begin arming themselves for insurrection using the notoriously porous borders of Belize -- where everything from drugs and television sets to Mayan antiquities has been smuggled on a grand scale.

The British troops who patrol the frontiers say that while guerrilla activity is heavy on the Guatemalan side, they have no evidence of any traffic in arms or soldiers going across the line.

Belizean Prime Minister George Price's friendliness with the Sandinistas of Nicaragua and photographs of him standing beside Cuban President Fidel Castro at celebrations in Managua last July send chills through the conservative Guatemalan military. Both Nicaragua and Cuba backed a U.N. resolution last year calling for Belizean independence. So did the United States, after years of abstaining on similar motions.

But that was under the Carter administration. Belize's leaders look with serious concern on the Reagan administration's possible role in Central America.

They fear the new administration may begin sending extensive military support to Guatemala, as it has to El Salvador, in the fight against leftist guerrillas.

"If there is a U.S. arms buildup for Guatemala, the Guatemalans may say it is for internal security," said Belizean Attorney General Said Musa, "but certainly it could be used outside against Belize."

The Belizeans can only hope that the United States will exact strict assurances from Guatemala's government before reinforcing Guatemala militarily.

Musa is considered one of the most leftist members of the Belizean government. His Peoples United Party manifesto takes pains to say "The PUP is not a communist party," and its policies are only moderately socialist, but Musa and others fear a hostile reception from the Reagan administration.

"The United States," said Musa, "can allow a democracy as exists here to flourish, or they can kill it by becoming victims of Guatemalan propaganda and taking a hard line against Belize."

The Peoples United Party has been the dominant domestic political force in Belize since 1950. The colony has had internal self-rule since 1964.

"We are not rushing into independence," Prime Minister Price told some of his followers the other night. "We have been preparing for independence for 30 years."

Price places his faith in the survival of an independent Belize on its as yet unmaterialized hopes for a solid and moderately long-term security agreement with Britain.

Price is also counting on the prestige an independent country will have in the United Nations and other international organizations. The idea is that Guatemala wouldn't dare attack another bona fide nation for fear of the international outcry.

"If Belize gets independence, Guatemala is in trouble to get Belize," one of Price's associates put the idea to a political rally last week.

Lastly, Price and members of his party believe that Guatemala now has so many security problems internally that it cannot afford to undertake an adventure in Belize.

The opposition United Democratic Party, however, is demanding a settlement with Guatemala and a direct referendum to precede outright sovereignty.

"There's nothing wrong with leaping into the dark," said opposition Sen. Manuel Esquivel. "But what we're saying is if that's what we're going to do then the people should have a voice in it."

Price's people maintain that their party's overwhelming majority in recent elections is as much of a referendum on independence as is needed and that to wait for a Guatemala to postpone Belizean independence indefinitely by refusing to come to terms with Britain.

Without a settlement, however, opposition leader Theodore Aranda doubts the country, can ever be safe.

"No nation would endanger its own national security, but that is what Belize seems to be doing," said Aranda. "If the Guatemalans have waited more than 100 years to take over, why couldn't they wait another two or five."

In Aranda's opinion even five years is too much to hope for from the British, and, once the shade of big power protection disappears, Belize will be left to see whether it is possible to flourish at all.