An abrupt move last week by Nicaragua's Roman Catholic bishops to discipline all priests who do not withdraw from their government posts is forcing a resolution of the long-simmering, controversial issue.

The revolutionary Nicaraguan government has three priests in the Cabinet -- a Maryknoll, the Rev. Milguel D'Escoto, heads the Foreign Ministry; The Rev. Ernesto Cardenal, a poet, is in charge of culture; and the Rev. Edgard Parrales is minister of social welfare. The Rev. Fernando Cardenal, brother of the culture minister, is not in the Cabinet, but he led last year's nationwide literacy campaign and is in charge of the Sandinistas' youth movement. At least 20 more priests hold key positions in ministries and Sandinista political organizations.

The pressure by the church hierarchy on its activist priest to withdraw from the government has been on since Pope John II issued a directive more than a year ago urging all priests to refrain from political activity. In the United States two priests withdrew from congressional campaigns in response to the pope's directive.

In Nicaragua, where the vast majority of the people are practicing Catholics, the bishops issued their first public warning to priests in the government in May of last year, saying that the post-civil war emergency situation that had justified priests' participation in politics had ended.

After complicated negotiations, the hierarchy agreed to consult the Vatican. Delegations of activists traveled to Rome to plead their case, and the Vatican ultimately declined to speak out on the matter, saying the conflict should be resolved within the Nicaraguan church. These things stood until last Friday's unexpected pastoral letter.

A flurry of meetings started, in an attempt to reach an understanding. So far, however, there has been no response from the clergymen involved. The controversy is being watched closely by Catholics throughout Latin America where many clergymen and women are involved in political activity, especially those who espouse the "theology of liberation" which holds that the church's duty is to help the poor work for a better life.

Not the least of the oddities of the Sandinista revolution here has been the active cooperation between state and clergy. Throughout Latin America for the last two decades, radicalized priests have turned to revolutionary doctrine as a tool to combat what they term the "social sins" of proverty, exploitation and political repression. Many have taken up arms in the continent's guerrilla movements. Some, including the Rev. Gaspar Garcia Laviana, a Spanish Priest who worked in Nicaragua, have died in combat.

The Sandinistas' victory in Nicaragua presented the church as an institution, and individual members of its clergy, with a stunning new situation. Rather than fighting the state, the radical priests were now in power.

Suddenly, the priests and, to a lesser degree, nuns were everywhere -- working long hours and rushing about, with documents and charts, secure in the conviction that they were doing God's work. Meanwhile, concern in the conservative church grew that things were going too far. Soon, what one Catholic has termed "the great battle for Jesus Christ" began.

Opposition by the business community to the government and the Sandinista National Liberation Front, which dominates it, has become increasingly open and virulent. More and more, it has made alliance with the church hierarchy, led by the influential bishop of Managua, Miguel Obando y Bravo.

The euphoria of the Sandinista victory almost two years ago and the pressing urgency of organizing the new government enabled the radical priests, to tread fearlessly on this ideological minefield. Now they must face a series of delicate questions: Can the conflict between church and state be solved by saying it is not the church, but individual priests, who are participating in the government? Is counterrevolution a sin, as the rector of the Catholic University once proclaimed? And, if the church hierarchy remains adamant, where is the priests' greatest loyalty -- with the revolution, which they equate with the cause of the poor, or with the religious institution they are committed to?

The conservative church must also tread carefully. Many activist priests have warned their superiors that if pressed, they will choose the revolution over the church. A schism in the Nicaraguan church would have grave implications for the institution throughout Latin America.

But a decision apparently has been taken at the highest level. The morning the bishops' document was released, Bishop Obando of Managua took a plane to Rome. A journalist at the airport asked him if the Vatican backed the hierarchy in this debate.

"It does," he said curtly, and move on.