n the headquarters of the 3d Battalion, 7th Special Forces Group, there is a wall covered with framed photographs. One shows a tall American Santa Claus mobbed by smiling Panamanian children: "Civic Actions, David Orphanage, Dec. '79." In the picture next to it, Che Guevara's corpse lies open-eyed and bare-chested on a slab: "MTT Mobile Training Team , Bolivia, Oct. '67," reads the caption without further explanation.

Col. Fred Scruggs, the lanky, slow-talking Kentuckian who commands the unit, explained in a recent interview how his people are now training "about 20 men to be cadres in patrolling in Costa Rica." Another of his teams is trying to shape up notoriously ineffectual battalions of government troops in the heavily contested Salvadoran provinces of San Vicente and Usulutan.

As they were the leading edge of U.S. efforts in Southeast Asia 20 years ago, the Special Forces are the vanguard of Washington's counterinsurgency initiative in Central America today. But Scruggs' 305 Green Berets are only part of the total American force at the U.S. Southern Command, or "Southcom," as it is called.

Historically a backwater for the U.S. military, the command now finds itself the nerve center of what its outgoing chief considers a continent-wide war against Soviet-Cuban expansion. The command's almost 9,000 Army, Navy and Air Force personnel are the hub of the U.S. military presence from Tierra del Fuego to Tijuana.

Protecting the Panama Canal remains Southcom's primary function, but its business now goes well beyond that. Its activities include training government forces to fight leftist insurgents and maintaining ties with the military leaders who rule many countries in the region. It has been accused of supporting rebel groups seeking to overthrow Nicaragua's leftist government.

Critics on the left, said one concerned Panamanian military official, charge that the training results in "dictators" and repression in Latin American countries.

The secrecy surrounding many of Washington's activities in the area makes the Southern Command the object of curiosity, suspicion and expensive propaganda.

Panamanian, Cuban and other intelligence agents religiously watch the cargo planes taking off from Howard Air Force Base and other fields at the command's disposal.

The commander of Panama's National Guard and the main power in its government said in an interview earlier this month that some U.S. operations against the Sandinistas in Nicaragua are "launched from here."

Panamanian officials say that as many as half a dozen C130 transport planes a day leave the facilities of the Southern Command with equipment bound for El Salvador and for Honduras, where many of Nicaragua's counterrevolutionaries were trained and still maintain clandestine supply routes.

On Thursday Nicaragua's Sandinista newspapers carried a curious item quoting the Cuban Embassy on the eastern Caribbean island of Grenada saying 10 flights a day leave the old Panama Canal zone for the troubled countries backed by the United States in Central America. The only flights that attracted attention here until recently had been those taking relief supplies and rescue workers detailed from the Southern Command to help victims of natural disasters in Latin America.

Lt. Gen. Wallace H. Nutting, head of Southcom, said in an interview that supply flights to El Salvador and Honduras "usually" do not exceed one or two a day, and Southcom officials generally either deny connections with covert activities or plead ignorance of them.

Scruggs, for instance, said that despite his group's ability to train guerrillas, and despite the fact that many of the insurgents fighting Nicaragua's leftist revolutionary Sandinista government sport patches on their caps reminiscent of the Green Beret insignia, "we are not involved and have not been involved in training those people."

With its "milgroups" in U.S. embassies all over Latin America, the command watches over U.S. military assistance in the region.

The military group commander in a given country is supposed to advise the U.S. ambassador on military matters, but in the many nations where the Army is the government, the military group sometimes serves almost as a parallel embassy.

The idea that military men, and perhaps only military men, know how to talk to other military men is pervasive at Southcom. Long before the region's wars made it a practical necessity for some countries, the philosophical rationale for the expensive training offered Latin American armies by Southcom's U.S. Army School of the Americas, smaller Air Force and Navy schools and the roving mobile training teams under its jurisdiction was that these programs built hemispheric understanding.

Now, the training is also portrayed as a means of promoting an evolution from military rule in many countries to democracy.

As it tries to cope with the conflict where the fronts are often psychological rather than physical, Southcom puts increasing emphasis on symbols.

One important symbol used by the Southern Command is the joint military exercise. In February, Southcom carried out the largest joint maneuvers ever conducted in Central America when 1,500 U.S. military personnel worked with several Honduran battalions to stage a well publicized show of force near the Nicaraguan border at Puerto Lempira and Mocoron.

Southcom's facilities stretch from Gulick here on the Atlantic side of the isthmus where the Special Forces are based and the School of the Americas is located, to Fort Clayton, which houses the 193d Infantry Brigade Headquarters, to the unified command center at Quarry Heights above Panama City on the Pacific.

Gorgas Hospital, named for U.S. Army Dr. William Crawford Gorgas, who eradicated yellow fever here at the turn of the century, is tied to a center for research on tropical diseases.

Fort Sherman's dense forests provide the only jungle warfare training center the American military has. About 11,000 U.S. troops are run through it each year along with contingents of Latin American soldiers in training.