A TERRIBLE WAR continues in El Salvador. But talk of peace is in the air. Earlier this fall, the outlook was bullish. More recently it has been the other way. What is going on?

The struggle in El Salvador may have entered its next-to-last stage. The last stage, if it comes, will require government and guerrillas to try to reconcile their differences. Meanwhile, however, both sides must sort themselves out. There is some evidence that the guerrillas have been trying to position themselves for a political settlement. Just such an effort is now apparent on the government side.

A struggle for power is being waged between the two leading government elements, both of them military. One, led by Defense Minister Jos,e Guillermo Garcia, accepts reform and some kind of "dialogue" with the left. The other, led by Roberto d'Aubuisson, elected president of the constituent assembly, represents the feudal right and opposes any reaching out to the left. The tug between them has been especially active in recent months.

It is a Salvadoran argument, but inevitably the United States is part of it by virtue of the commitment two administrations have made to democratic reform and anti-communism. In the Reagan period, it has sometimes seemed -- seemed to Salvadorans, that is -- that the United States was so intent on fighting communism that it would not insist on reform. The d'Aubuisson forces have hoped to capitalize precisely on this tendency. Recently, however, administration officials have been trying to demonstrate that reform, including concern for human rights, cannot be stinted. That translates into support for Gen. Garcia.

Gen. Garcia is not, by American standards, a liberal. He is a tough general involved in a guerrilla war and a political struggle at the same time. He is very much a man on the spot. He has become the principal custodian of the American connection, through which flows the aid that keeps the government upright, but he is to the feudal right an American tool.

This puts on American policy a requirement it has had difficulty in meeting here and in many other Third World places. The United States must demand from Gen. Garcia a domestic performance that will help him rally his own people and that will make support of him acceptable to an American public concerned about rights and reforms. But the United States cannot make such heavy demands that the general and his government will collapse. It comes down to a judgment on how much American pushing the local traffic will bear. Our own feeling is: more.