After 18 months of guns and butter, Iraq has decided to moderate the breakneck pace of a vast economic development effort and concentrate financial and human resources on support of its war with Iran.

The Baathist Party government's reluctant moves to brake civilian spending mark a natural pause at the end of furious building in the last several years, government officials say. But according to foreign diplomats here, the moves also reflect a painful reassessment of Iraq's ability to finance a war estimated to cost a billion dollars a month, with no end in sight, and an effort to involve civilians more closely in the conflict as the cost to the nation in blood climbs sharply along with the cost in treasure.

"We probably reached a point late last year when the spending line and the revenue line crossed," said a Western specialist. "It's not that development is going to stop, but there is a reappraisal . . . . Contracts are being honored, but time of execution is being rolled back."

The curbs coincide with a strengthened military mobilization announced by President Saddam Hussein in January after the regular Army suffered a serious setback. To dramatize the effort, government officials wear military uniforms in their offices and Hussein is seen regularly on state television visiting training camps for the newly active Popular Army.

Taha Yassin Ramadan, the Popular Army commander and Revolutionary Command Council member, said his forces number about 400,000 and will grow to half a million by the end of the year. He said 70,000 fought alongside troops from the 300,000-man regular armed forces during last month's Iraqi counteroffensive near Bostan, their first large-scale participation in actual combat.

The Popular Army has been part of the Iraqi military establishment for years, with men called in for periodic training as reserves. But the number of those obliged to report for duty has shot up in recent months and, Iraqi military officers report, they are being sent to the front after swift updates in military training.

More than 20,000 Iraqis have been killed in the war, Western diplomats say. Citing a military rule of thumb, they estimate three times that many have been wounded. The first person this correspondent met in Baghdad--a taxi driver from the airport--said he was on a 90-day furlough to convalesce from shrapnel wounds. A diplomat who drove to Najaf, 100 miles south of Baghdad, reported seeing about 15 coffins on the way to villages for funerals.

Saddam Hussein is reported to feel strongly about the growing Iraqi casualty list despite his reputation as a ruthless commander who according to European informants personally shot several officers for blundering in December's reversals.

Despite these signs of a war hitting home, however, foreign diplomats and Iraqi officials alike maintain the president's mobilization campaign has kept his personal popularity and support for the war from drooping. Reports abroad of widespread sedition--by dissidents from the 55 percent Shiite Moslem majority against Hussein's Sunni-dominated government--seem exaggerated, according to Western and other diplomats here.

"The country is more united than before," said an Asian diplomat. "The people don't want the war to go on, and some may even blame Saddam for it. But they don't want the revolution of Iran to happen here, and that includes the Shiites."

This is due in part, however, to Hussein's brutal reaction to earlier signs of Shiite disloyalty. Thousands of Shiite Moslems of Iranian extraction have been expelled from Iraq since the war began. Diplomats say a new series of sweeps and arrests resulted in more expulsions in recent weeks. Partly as a result, they say, the main Shiite dissident group, The Call, has been dismantled.

On the economic side, Hussein's mobilization has seriously dented a high-priority Iraqi program to make sure the 3.5 million Iraqis in the active labor force keep pace with economic development, an effort to avoid long-term dependence on foreign experts and non-Iraqi labor.

Iraqi officials complain openly of inadequate staffs, and visitors to ministries report empty offices up and down the corridors. Diplomats estimate the number of employes has dropped by one-fourth in most government establishments since war broke out in September 1980.

The number of Egyptian workers--almost 1.5 million out of 2 million foreigners--is growing. They send home more than $4 billion a year, straining the traditionally strong Iraqi currency, diplomatic sources say.

To a large extent, however, the manpower problem is a result of Iraq's swift development pace as much as the war. Sabah Kachachi, a planning ministry adviser trained at the University of Illinois, said $22 billion was allocated for investment last year and $25 billion was beingallocated for this year.

"This is so because for us development is serious business, just as serious as the war," he said in an interview in his office overlooking the Tigris River.

Western diplomatic sources, assessing official statistics, estimate about $18 billion was actually invested last year and predict a similar amount will be spent this year. With inflation, this marks a decline in real investment after years of increase, they point out.

Much of Iraq's financial effort depends on continued generosity by Iraq's Arab neighbors along the Persian Gulf. Some diplomatic estimates put the total loaned Iraq last year as high as $24 billion, with Saudi Arabia the leading financier at $12 billion followed by Kuwait at $6 billion, the United Arab Emirates at $4 billion and Qatar at $2 billion.

The role of borrower is new and undoubtedly unpleasant for Hussein, who only three years ago was suggesting a gulf strategic consensus under Iraqi leadership. In a speech last week at an Arab Labor Federation conference here, Hussein hinted at the frustration.

"Wisdom is not finding faults only, but also lies in tackling them with minimum harm," he said in the rambling address. "Wisdom is not in rejecting your mother, father or brother when you detect their faults, but to basically rectify these faults."

This was seen as a reference to Iraqi disappointment at Arab support for the war, particularly Syria's open military and diplomatic backing of Iran. Despite trumpeted declarations in several Arab capitals, Western diplomats report only a few hundred Jordanian regulars and a similar number of North Yemeni soldiers have shown up to take part in the fighting.