The Reagan administration's public confrontation with Libya's erratic Col. Muammar Qaddafi is inadvertently boosting the Libyan leader's checkered image in the region and tarnishing U.S. credibility among other Arabs in the Middle East, according to Arab analysts here.

While opinion varies widely as to whether Qaddafi has in fact launched "hit squads" to assassinate U.S. leaders in Washington, as American officials claim, and doubts are even raised over Libya's capability to do so, Arabs here are almost unanimously puzzled and worried by what is termed Washington's "overreaction" to the alleged threats from Libya.

Few, if any, here doubt Qaddafi's potential for mischief and trouble. The often-mystical Libyan leader's ambitions for pan-Arab leadership are well known throughout the Middle East. Residents of the area are aware of Qaddafi's ability to train terrorist groups, or purchase hit squads like those he unleashed in Europe a year ago to eradicate exiled critics of his regime and of his calls for the death of Egypt's Anwar Sadat and others who oppose him.

But interviews with Arab officials, diplomats, scholars and journalists here indicate a general feeling that what one called "the almost-paranoid" Washington view of Qaddafi is counterproductive, giving Qaddafi an importance hardly shared among his fellow Arabs.

Washington's public denunciations of Qaddafi, the Sixth Fleet naval exercises off Libya's coast (and the resulting aerial clash that ended with the downing of two Libyan jets), and the recent Bright Star military exercises just off Libya's eastern border have created sympathy for Libya among many Arabs who view such U.S. actions as an arrogant exercise of what one Kuwaiti newspaper called "cowboy diplomacy."

Washington's seeming focus on Qaddafi, the ruler of a backward, oil-rich, desert nation of only 3 million people, as the cause of all its frustrations and troubles in the Middle East is viewed by most Arabs here as simplistic. The concentration of official U.S. criticism on Qaddafi has revived memories of past U.S. obsessions with Cuba's Fidel Castro and Egypt's Gamal Abdel Nasser, both of whom people here believe were helped rather than hindered by Washington's attacks.

"In the eyes of the Arab world President Reagan is looking like a fool," said Ihsan Hijazi, the editor of the Middle East Reporter. "Even among those Arabs who don't like Qaddafi there is a feeling that you are giving him undue importance, making him something much bigger than he is."

Another Arab editor, who, like most sources in Beirut, preferred not to have his name used, said: "To you in the United States he may be a villain, but to many Arabs, the more he is attacked, the more he comes out a hero, a man who can stand up to a superpower."

Arab politicians say that the idea of Qaddafi's small nation, most of whose people are only a generation or two out of their Bedouin tents in the North African desert, as a real threat to the might of a superpower like the United States is not credible here, no matter how much money Libya has, how many turncoat CIA agents it can recruit and how many sophisticated Soviet weapons it wants to buy for some future when its limited, overstretched little Army might have the know-how to use them.

The pro-Libyan Beirut daily As Safir used ridicule to counter American pronouncements early this week in an editorial headlined "The American David and the Libyan Goliath." The editorial said that Libya was used to U.S. attacks because of its opposition to U.S. policy in the Middle East, but noted that what was new is the presentation "of Libya as the evil giant capable of doing anything: from arming liberation movements in the world to the killing of the U.S. president."

Underlying this feeling here is the perception of limits of Libyan influence and power, which, in the end, are attributable only to Libya's ability to purchase temporary, and unreliable, support with its $22 billion-a-year oil income.

"Qaddafi has no real support in the Arab world, no one either cares for him or takes him that seriously," said one Palestinian academic with close contacts with Yasser Arafat's Palestine Liberation Organization. "Libya has a lot of publicity but if you take the money away, it would have none. Nasser got publicity for free because Nasserism was a genuine movement. What really is 'Qaddafi-ism' ?"

Arabs in general look down on Libya. Qaddafi's pretensions to take over the pan-Arab leadership mantle that once belonged to Nasser are viewed with undisguised contempt by non-Libyan Arabs who understand that only a leader from such large, historical centers of Arab power as Egypt, Syria and Iraq could ever be accepted. Qaddafi's efforts at creating his own original political philosophy, "the third universal theory" dispensed around the world in his little Green Book, is an object of open amusement among many Arabs.

Much is made in the West of the armaments Libya has purchased in recent years -- the 2,400 battle tanks, the 450 sophisticated French and Soviet fighter jets that make up its Air Force, its thousands of armored cars, its four submarines. But Arabs recall that only a year ago Qaddafi had a mere 55,000, mostly illiterate, draftees from the desert.

Would such a force be a match for Egypt's much more experienced, 367,000-man armed forces, or even the weaker, Egyptian-allied forces of the Sudan, over a desert territory that even Hitler's Marshal Erwin Rommel never succeeded in breaching, many here ask.

"What you Americans have to realize is that there is a vast difference between words and facts in this part of the world," said one senior Arab diplomat here, ridiculing U.S. fears over Qaddafi. "Just because Qaddafi says he is a power, claims to be a leader or a commander, does not make it so. The fact is that he is but a voice in the wilderness with a lot of money to buy publicity and unusable weapons and to fund a certain number of mischief-making groups in the area or even abroad. To treat him like the most dangerous man in the world, however, is simply absurd."