"Amputate Morocco's Sahara," says El Aaiun Governor Salek Zemrag, "and you cut off an arm. There's no life after amputation."

Zemrag and his Moroccan administration in this fast-growing frontier twn, the capital of Saharan territory Morocco acquired from Spain in 1975, profess no doubts that the referendum Morocco's King Hassan proposed in the territory would be overwhelmingly favorable to Morocco. They see the alternative -- a separate Saharan state ruled by the guerrilla Polisario front, which the Moroccan Army has been fighting since 1975 -- as "amputation."

Hassan's surprise offer, at an African summit conference in Nairobi in June, of a "controlled referendum" on the territory's future, has cooled one of Africa's most vituperative disputes, at least for the present. It has also helped Hassan restore an enfeebled position of leadership among moderate Africans and among Arab states sharing Morocco's friendship and alliance with Saudi Arabia, which supports Morocco but also is working for a solution.

Here in the Western Sahara's capital, where Morocco is investing hundreds of millions of dollars each year in the territory's rapid development, there is skepticism about the need for a referendum.

Zemrag, a dynamic, good-humored man from central Morocco, says, "People are ready to vote here, if that's what his majesty the king and the African nations want." Morocco insists that only the 74,497 inhabitants recorded in a Spanish census of 1974 should cast ballots.

The opposing Polisario Front, whose self-declared Saharan Arab Democratic Republic operates a government-in-exile from its main base near Tindouf, Algeria, and another base called Hawza, inside the Western Sahara, thinks otherwise. It has demanded that refugees who fled the territory after the Moroccan Army "invaded" it in 1975-76 -- numbering anywhere between 300,000 and 1 million -- be allowed to vote. Polisario also demands total withdrawal of the approximately 50,000 Moroccan military and 5,000 or more civilians from northern Morocco before any vote.

For Zemrag and the Moroccan royal administration here, any abandonment of the Western Sahara to Polisario would amount to amputating a vital part. It would deprive Morocco of already developed phosphate resources, of still unpolluted Atlantic fishing grounds and of the possibility of finding offshore oil deposits in an otherwise nearly totally oil-poor country.

Completion last April of a 450-mile long, sandwich-like wall of sand and stone, garnished with barbed wire, minefields, and electronic sensing devices to keep out Polisario's raiding motorized columns, has greatly enhanced the sense of security here and in the territory's other main towns.

Curfews, the planting of mines on roads, and night mortar or rocket attacks by Polisario infiltrators have ceased here since the spring.

El Aaiun's well-lit streets and shops, amply stocked with subsidized, tax-free goods, and its scores of new houses, mosques and schools already built or under construction show that the central Moroccan authorities in Rabat are sparing no expense to attract needed skilled workers and civil servants.

One of the few remaining signs of the war here are obligatory lights-out landings and takeoffs by Royal Air Maroc airliners at El Aaiun's air base and new international airport. The planes' lights might still present tempting targets for Polisario gunners. Polisario's missiles have brought down about 30 Moroccan Royal Air Force Northrop F5s, French-made Mirages and other planes since fighting began in 1976.

Whether the road taken by Hassan at Nairobi now leads back to renewal of the war or toward a real peace, Moroccan officials here believe, may depend largely on Libyan leader Muammar Qaddafi. There is a strong sense here that the Polisario's Algerian supporters have had enough of the war and the bitter divisions it has caused in Africa, and are seeking an honorable way out.

Qaddafi's rapprochement with Hassan, one of a series between usually hostile Arab leaders following Israeli air attacks on Iraq and Lebanon in June and July, has already yielded some results.

Propaganda attacks by Morocco and Libya against each other have ceased. Ambassadors are being exchanged, a development worrying to Algeria. Morocco hopes that the generous flow of Libyan cash and arms to Polisario will now dry up. A second major source of arms, according to Moroccan officials concerned with security at the big phosphate terminal on the coast 12 miles east of here, comes by small boat from Las Palmas in the nearby Canary Islands. Most of these arms are landed on the neighboring coast of Mauritania, which fought with Morocco against the Polisario until 1979, then quit the war and yielded Western Saharan territory it had occupied to Morocco.

Though it is about 700 miles away, Libya looms large in Moroccan projections. "Qaddafi," says Bashir Abideen Moumen, president of El Aaiun's municipal council, "is like an impatient child playing backgammon. eHe throws the dice and then he wants to take everything, whether he has really won or not. Maybe now he feels it is in his interest not to play the Sahara game for awhile."