About 10,000 persons had gathered at a square in central Jakarta last March 18 for a rally by Indonesia's ruling Golkar coalition when fighting broke out in the crowd. Before the night was over, rioting and arson instigated by youths shouting Islamic slogans had spread to other parts of the city, and troops were called in to quell the disturbances.

News of the rioting was suppressed locally, but witnesses reported later that many Golkar members, including women, had fled the scene after shedding their party uniforms, which were then heaped up and burned by the rampaging youths. The government denied reports that at least a dozen persons were killed.

Eight months later, critics of the government cite what has become known as the "Banteng Square incident" to support their contention that all is not well with the seemingly stable government of President Suharto, who has held power for the past 16 years.

Like the volcanoes that dot the islands of this sprawling archipelago of 150 million people, they say, tensions seething under the surface of the normally placid political landscape can erupt with little warning and great violence.

"There is a social explosiveness here," said one prominent dissident, Abdul Haris Nasution, a retired Army general.

It was perhaps with this in mind that the religious affairs minister, Alamsyah Ratu Prawiranegara, last month called in councils representing Moslems, Catholics, Protestants, Buddhists and Hindus to sign a joint statement that he said was to help reduce possible unrest connected with a session in March of the People's Consultative Assembly.

The assembly is scheduled to reelect Suharto, running unopposed, to another five-year term. He also wants it to ratify his declaration that the already tame political opposition parties must no longer be based on religion but only on the official state ideology, known as pancasila.

On the surface, Suharto seems stronger than ever. At 61, he appears sufficiently in control to turn his attention to building a legacy of harmony and unity that will override the diversity of this 13,600-island archipelago and consolidate its nationhood.

Rebellions against Jakarta's rule have been put down in East Timor, Irian Jaya on New Guinea and the north Sumatran province of Aceh. Hundreds of Moslem agitators have been arrested, and troublesome student groups have been suppressed.

At the same time, Suharto has steadily pursued economic development. Per capita income of $560 last year lifted the country out of the ranks of the world's poorest nations. Potential rivals have been kept at bay as Suharto deftly has played them off against each other.

The Army's loyalty has been maintained through the parceling out of government posts and money and various "extrabudgetary enterprises."

While even opponents see no threat to Suharto and no immediate prospect of an upheaval, they point to festering resentments that could pose challenges in the future. The world recession is hitting Indonesia harder than expected, and the estimated 50 percent of the population that still lives in poverty may face tough times ahead.

Besides opposition to Suharto's secularism from militants among the 90 percent Moslem population, there appears to be growing resentment against religious and ethnic minorities--particularly Christians, who hold some important government posts, and Chinese businessmen who dominate the private economy through symbiotic relationships with Indonesian generals.

Although Indonesia remains strongly attached to the Nonaligned Movement, U.S. and Indonesian foreign policies closely coincide and the United States staunchly supports Suharto, who paid a state visit to Washington in October.

The importance that the Reagan administration attaches to Indonesia, the world's fifth most populous nation and the largest Islamic state, was summarized in recent testimony before Congress by Assistant Secretary of State John Holdridge, who has since been nominated as the new U.S. ambassador to Jakarta.

"Indonesia is the largest country in the Association of Southeast Asian Nations, support for which is the cornerstone of U.S. policy in Southeast Asia," Holdridge said. "It is a moderate voice in the developing world, an important oil producer and a major arena for U.S. trade and investment. And it occupies a strategic position astride vital sea lanes connecting the Indian and Pacific oceans."

Neglected by its Dutch colonialist rulers, Indonesia faced a difficult period after nationalists led by Sukarno won a four-year war of independence in 1949. President Sukarno consolidated his power under the slogan of "guided democracy" and aligned himself increasingly with Asian communist states abroad and the 3 million-strong Indonesian Communist Party.

In 1965, the party was blamed for an unsuccessful coup attempt that resulted in the deaths of six senior generals and triggered a wave of murderous, military-backed retaliation against Communists in rural areas. At least 500,000 Indonesians were killed in the succeeding months, including many noncommunist Chinese, as the reprisals took on the character of a holy war inflamed by anti-Chinese prejudice. More than 100,000 suspects were arrested, many of them to be held for years without trial.

Gen. Suharto, who as head of Jakarta's Strategic Command troops had crushed the abortive coup, gradually took power from Sukarno. He assumed key powers in March 1966 and a year later was named president by the assembly.

Suharto inherited an economic mess--inflation in 1966 was running at 640 percent -- and launched a development-oriented "New Order" to replace the revolutionary philosophy of Sukarno, who died in 1970. As the basis of the new order, Suharto adopted the pancasila, or five principles described by historian John F. Cady as a "platitudinous affirmation" of nationalism, humanitarianism, representative government, social justice and faith in God.

Although Suharto has stressed that the ideology "cannot replace religion," authorities made it clear that the opposition United Development Party made up of Moslem groups would have to change its Islamic platform.

"The party will lose its Islamic character," lamented Lukman Harun, president of the Islamic Solidarity Committee, a civic action group that has been critical of some government policies.

He also complained that "Christians are very active among us to convert Moslems through so many activities."

It has been estimated that the number of Christians in Indonesia has doubled in the past 20 years, many of the converts coming from the persecuted ranks of former Communists. Suharto has been accused of favoring Christians, who account for 5 percent of the population, to fill sensitive military and intelligence posts.

According to Mulya Lubis, a lawyer in Indonesia's Legal Aid Institute, there are about 400 Moslem political prisoners in different parts of the country. Many of them reportedly were jailed in a crackdown after an Islamic group calling itself Komando Jihad, or "holy war command," hijacked an Indonesian airliner to Bangkok last year.

While membership in Moslem militant groups is believed to be small, and mainstream Islamic organizations spend much of their time trying to distance themselves from the ideology of Iran's Ayatollah Ruhollah Khomeini, authorities evidently view Moslem activists warily. References to Iran frequently come up in conversations with dissidents.

As in Iran, Islam is also viewed here as a potential rallying force for more secular opponents, who hope that if a revolution comes they will succeed in asserting their views where Iranian moderates failed.

"Islam is a way for opposition elements to unite," a formerly detained student activist and avowed socialist said candidly.

Another outlet for opposition sentiments, Indonesians say, is a nostalgia cult for the late Sukarno. Cassette tapes of the charismatic leader's speeches have gained popularity, especially among people too young to remember him when he held power.

Other grievances against Suharto's rule include the Army's role in political life, deeply ingrained corruption, the government's control of political parties and the rubber-stamp parliament and lack of basic freedoms.

"Freedom of the press doesn't exist here, and so many human rights cases are not known," said Mulya Lubis, the legal aid lawyer. Although most of the suspected Communist political prisoners of the 1960s have been released, he said, "in some respects things are even getting worse." He cited a new defense bill that formally legalizes the military's "dual function" in civil administration.

"I think there is very much opposition in the country" to Suharto, said a newspaper editor, "but there's almost no way to measure it. No one can criticize the president, and anyway no newspaper can publish it."

"The government considers the important thing is to promote growth, but it neglects the necessity to promote the democratization process and honor human rights," said Adi Sasono, director of the Institute for Development Studies and a former student activist against Sukarno. He added, "Western countries should realize that their aid is going to a corrupt regime. It's like pouring water into a bamboo basket."

According to Nasution, the retired general in the forefront of a moderate dissident group, "all of us are of the opinion the president has to be warned to stick to the constitution. Our struggle is to get the constitution working."

"We have a constitution that is good on paper," said another dissident, who did not want to be named. "It's all very democratic," but Sukarno and later Suharto "violated the constitution, manipulated elections and destroyed political parties."

"Even the laws are not working well in this country," he added. "You can buy the police, the prosecutor and even the judges. There's no real democracy, and corruption is getting worse."