Uruguay's cautious, military-led experiment of gradual return of democratic rule appears to have fallen victim to its own internal contradictions, the personal ambitions of its leaders and mounting social and political unrest, political observers here say.

A breakdown in early July of talks between the military and its civilian opponents about the terms of a return to democratic rule slated for 1985 has meant that hard-line military men led by President Gregorio Alvarez so far have foiled the development of a more moderate consensus among the military's 27-man ruling council, these observers said.

The halt in negotiations, which foundered over differing positions on the military's eventual role in security affairs, is seen here as a blow to hopes that a three-year-old political liberalization plan will result in a civilian government early in 1985.

A subsequent provisional government ban on all public political activity and related news coverage has added greatly to a general feeling here that the redemocratization process is suffering its worst moment in recent years.

"The military [leaders], despite having given their word on elections in 1984, are making that word each time more and more relative," said Luis Antonio Hierro, a leader of the radical-liberal Colorado Party. "I think the dice have been thrown already, and in a month and a half things are going to be very convulsive."

The ban on political activity, announced Aug. 2 by the interior minister, retired Gen. Hugo Linares Brum, prohibits all public activity by Uruguay's three officially recognized centrist parties and bars the publication of any news or editorial comment related to political activity not having the express consent of the government.

Although the ban did not extend to efforts by the parties to proceed with their political reorganization, it expanded provisions for proscribing political activists and made the new rules retroactive to 1976. About 1,000 politicians, including top leaders from Colorado and the more conservative Blanco Party, Uruguay's traditional parties, are prohibited from political activity in this small country of 3 million people surrounded by Brazil to the north and Argentina to the south and west.

Leaders of Uruguay's three legalized parties--the Blancos, Colorados and the Christian Democrats--said they broke off the negotiations on the new constitution when it became clear that the military was willing to hand over the reins of government, but not real power.

Uruguay's military leadership asserts that Uruguay's 1967 constitution, the last democratic charter, allowed too much freedom. The military maintains that the new document must give the executive and the military enough power to counter threats from "international Marxism." These powers would include curbs on individual, trade union and academic freedoms, a tighter rein on the judiciary and legislature, and a degree of autonomy for the military.

The military fought off a challenge by the leftist Tupamaro urban guerrillas in the early 1970s, decisively defeating them by the end of 1972.

The politicians said they had become worried that the military was trying to win in the talks what could not be gained in direct elections.

"The military made the mistake of thinking that by dangling the possibility of occupying posts in a constitutional government, we politicians were going to act like dogs before raw meat and go for it, no matter how bad the accord was," said one civilian participant in the talks.

The breakdown in the civilian-military negotiations has been accompanied by an increasing number of acts of open dissent against the repressive government and evidence that its international image--always shaky because of its reputation as a consistent violator of human rights--is slipping again.

Despite Uruguay's usually efficient suppression of unauthorized protests, dissent has been on the upswing in the six weeks since the 10th anniversary of the June 27 military coup that ended constitutional rule.

In the past six weeks, there have been four public demonstrations in Montevideo, the capital, three street protests in different regions in the interior, a student strike at the University of the Republic--the first since the coup--and repeated instances of Chilean-style banging of pots and pans in two of the capital's districts.

In addition, the only human rights group active here issued the first public charges of torture, claiming that about 25 opponents of military rule were detained and tortured by police in a crackdown coinciding with the 10-year anniversary.

Following the issuing of the new political and press curbs, the U.S. State Department implicitly criticized the moves, saying that while relations had improved as Uruguay moved toward democracy, the latest measures were the sources of "particular preoccupation." A similar statement from the European Community is expected soon.

The State Department commentary came amid what opposition leaders said were new efforts by the U.S. Embassy to strengthen contacts with political and union spokesmen, including proscribed individuals. They said a letter from high-ranking retired U.S. military officers sent last month to Alvarez asking for the release of a former general and leftist presidential candidate, Liber Seregni, was, in the words of one, a "body blow" to the military leadership. Seregni, 65, has spent most of the past 10 years in prison.

The military's isolation will grow even greater, political leaders warn, with Argentina's scheduled return to constitutional government. Talks between leaders of the three traditional parties and their Peronist and radical counterparts in Argentina already have begun on ways to pressure Uruguay's military back to the barracks.

Analysts here say Uruguay's economic situation may cause the balance to tip again, this time in favor of moderate military men and their political counterparts.

he days when Uruguay was the most advanced welfare state in Latin America, built on cattle and sheep revenues, are gone. Last year Uruguay's gross national product shrunk by 10 percent, and it is still declining. Unemployment currently hovers around 17 percent, and inflation for the past 12 months reached 46.5 percent. In 10 years of military rule, the average worker's buying power has been halved.

"There are now middle-class families that cannot meet their food budget," said Juan Pedro Ciganda, a bank workers' union leader. "This government has meant workers' buying power [is] cut in half, labor laws are unenforced, inflation is rampant and unemployment is ballooning. It's a disaster."

The worsening economic situation has begun to affect military institutions as well, and observers here said that all three branches have had to make cutbacks, particularly in travel and training.

The military's concern about the future of the armed services has begun to show in informal talks between ranking officers and civilian political leaders. A number of top military men have asked the politicians not to break off contacts and thus strengthen the hands of the hard-liners led by Alvarez, who is known to want to remain in office until 1987 or 1989.