Stopping Marxist expansion in Central America requires a substantial, ideally open-ended increase in U.S. military aid and military trainers on the ground in El Salvador, and may ultimately require a willingness to use U.S. troops, according to the commander of U.S. forces in Latin America.

"From my point of view, in a military judgment," said Lt. Gen. Wallace H. Nutting, head of the U.S. Southern Command, "we have not done what is required."

In an end-of-tour interview at his headquarters here last week, Nutting, 54, described his nearly four years in Panama as filled with frustration, initially over American unwillingness to recognize the problem in Central America, and more recently, failure to achieve consensus on what should be done about it.

Central America is at war, Nutting said. The United States, like it or not, "is engaged in that war." He said the moment of crisis that he predicted when "nobody listened" is now at hand and "the alternatives . . . are starkly clear . . . . If we give up, it may be the last time."

Although the Reagan administration "has said that we will not allow a Marxist government to take office in San Salvador, our government as a whole and our people as a whole have not followed up that commitment with a willingness to take those steps necessary to bring that about," Nutting said.

Referring to current restrictions on the number of U.S. personnel and resources provided, he said, "as long as those limits on our willingness to engage in the ultimate resolution of the problem are evident to the guerrillas, they will persist. They have the example of Vietnam to refer back to. If, as some people claim, that war was lost in Washington, they hope they can win in Washington too."

U.S. debate over levels of assistance, human rights and covert action not only give the guerrillas heart but debilitate the Salvadoran armed forces, he said.

During Nutting's tour, the Southern Command has become the operational hub of the rapidly escalating U.S. effort to contain the spread of revolution on the Central American isthmus. Consisting of 9,000 Army, Navy and Air Force personnel, the command's primary task is defense of the Panama Canal, but it has administered the distribution of hundreds of millions of dollars of military aid to El Salvador and overseen a total of up to 150 U.S. military trainers in El Salvador and Honduras.

Nutting echoed Reagan's pledge that the use of U.S. troops is not currently under consideration. "When you talk about introducing U.S. combat forces in El Salvador," he noted, "you have to do it with great concern about the narrow path the United States walks in Latin America, for all the reasons of history.

"And for a whole lot of reasons, we should not want to intervene. That's another lesson of Vietnam."

But, he said, "the guerrillas are winning the psychological war." The U.S. debate must be ended and an open-ended commitment pledged, with national consensus behind a free presidential hand, if the guerrillas "are to be convinced they can't win" militarily, he added.

The longer the United States waits to make such a commitment, Nutting said, the higher the cost will be. Asked how high, short of sending U.S. troops, he said, "Nobody knows. That's part of the complexity of this form of warfare, because the ultimate cost is dependent, to a certain extent, upon the evident commitment to prevent them from taking power.

"If we make the evident commitment without limit, then the cost will go down. I can't say at this moment that 150, 200, 500 or 1,000 trainers in El Salvador is sufficient. I'm pretty sure after a couple of years of experience that 55 is not."

A current congressional understanding prohibits the administration from sending more than 55 U.S. military trainers to El Salvador, a figure Reagan has said he could live with.

Nutting said, "If we are willing to throw $3 billion or $4 billion a year at the problem in Israel . . . --you know we are arguing over a national security interest of the equivalent proportion-- . . . we're talking about very miniscule amounts of resources."

Among other points Nutting made:

* The flow of arms to Salvadoran guerrillas, which the United States blames on Nicaragua, is "slowing down" at the moment, but the arms are "still essential" to the guerrilla war effort. U.S. efforts to interdict it have met with difficulty but "you have to make an attempt, and you have to make it expensive and worrisome and time-consuming for the opposition."

* U.S.-trained battalions in El Salvador have "done a good job" although they cover only 10 percent of a force that itself will have to be expanded this year. Nutting said he "probably shouldn't discuss" the current military situation there. "I was quoted a couple of years ago saying there was a stalemate and that if you are not winning you're losing," he said. "And that kind of discussion on my part doesn't help things . . ."

* Structural changes and the development of an adequate command structure within the Salvadoran armed forces have been slow in coming. "I guess one would have to say they haven't taken any decisive action," Nutting said.

* A "generational change" in the Salvadoran military may be required before its human rights performance improves significantly or its political role is downgraded. In terms of continued U.S. training, he said, there is an ongoing "need to appeal to their soldierly interests and instincts to continue to work in an evolutionary way to improve their ability."

* Although the administration has described Nicaragua as the catalyst for guerrilla war in El Salvador, Nutting said the situation may be the reverse, with the ultimate "unraveling" of Marxist leadership in Nicaragua depending "to some extent on what happens in El Salvador. If El Salvador is sorted out, I think it still might be possible that Nicaragua can be salvaged," he said, "without an invasion." He said the Sandinista example "probably" will have to removed if Marxist revolution in other Central American countries is to be definitively stamped out.

* The administration has described its support of rebel activities in Nicaragua as "support of actions designed to interdict the flow of arms and supplies and not to overthrow the government of Nicaragua and I have to believe that," Nutting said. But the rebels themselves are fighting, "I'm sure, to change the government in Nicaragua. I certainly would be if I were them."

A tall man of erect bearing, with a lengthy Army career spanning Korea, Vietnam and Western Europe before he took over in Central America, Nutting took command here Sept. 30, 1979.

Sitting in the office he is vacating for Lt. Gen. Paul F. Gorman, Nutting returned repeatedly to his concern that the United States in Central America is fighting a battle it does not understand.

The Soviets and the Cubans who have now established a beachhead in Nicaragua, he said, "understand our system better than we do . . . . They take steps to take advantage of the difficulty we have in making decisions, establishing a consensus."

"There clearly is a war going on . . . a highly politicized form of warfare. It's not a military battle alone by any means. It is political, psychological, economic and it's military, and frankly, we, the United States, institutionally do not understand it and we are not organized very effectively to cope with it.

"Our value system doesn't allow us to conduct psychological operations and use information for political purposes," Nutting said, and the United States is susceptible to those tactics when they are used by the Soviets and Cubans.

Such tactics, he said, include "impugning U.S. government officials, deriding and degrading the U.S. government and its values, attacking the armed forces and government in El Salvador as gross violators of human rights . . . They recognize that we are sensitive to human rights violations, therefore they work that for all its worth, through the press, and get people in the United States understandably upset . . . then they begin to raise questions about whether or not we should support people who violate human rights."

Most outside observers and many U.S. officials believe the Salvadoran armed forces are responsible for the majority of what San Salvador Archbishop Arturo Rivera y Damas has said have been more than 30,000 civilians "killed outside of combat" over the past 3 1/2 years. "I'm oversimplifying," Nutting said of his description of the source of human rights criticism. But the debate in the United States "and the threat to cut off support . . . affects morale and therefore commitment" within the Salvadoran armed forces. "I don't argue about the human rights issue. I've devoted my life to the protection of human rights."

"You have to understand," Nutting said, the Salvadorans "can't change overnight."