From the roof of the Potala Palace, a looming fortress of gold and granite that housed Tibetan god-kings from the 7th century on, one can look down on neat rows of buildings to the north and west, their clean brick exteriors protected by high walls.

This is the Chinese quarter, where the occupiers of Tibet live and work, people far from home sent here to extend Communist rule to China's most unruly region.

There is something classically colonialist about the Chinese in Tibet. They come for years but rarely learn the language or study the exotic religious and cultural heritage. They live apart in orderly compounds with little gardens, eat their own food and send their children to schools "inland"--the term they use for the rest of China. Openly contemptuous of the filth and social backwardness that surround them, they leave as soon as they can.

It is strange behavior for representatives of a government that professes hatred of racism and colonialism.

The rest of Lhasa lives in a bubble of its own. This is the Tibetans' city, a medieval jumble of twisting alleyways and flat-roofed mud structures adorned with colorful prayer flags and curtains--all wrapped in the overpowering stench of rancid yak butter and dung.

Now that the Communist overlords have backed off from the most repressive phase of their rule, Tibetans have resumed a semblance of their normal life. To outsiders, it may seem like a carnival in a Federico Fellini film: worshipers prostrate in dusty streets, advancing one body length at a time as they circle (clockwise) the holy Jokhang Monastery; goats, sheep and dogs--some with silk strands stuck through pierced ears--lazing on sidewalks, oblivious to the passing throng; elderly matrons clad in black robes, rainbow-colored aprons, high-top gym shoes and felt fedoras buying slabs of yak meat from market vendors.

Where Chinese in prim Mao suits pedal their Shanghai-brand bicycles to government offices, Tibetans amble along under huge sacks of religious paraphernalia needed for a day of Buddhist prayer, or they push wooden carts piled high with the simple household goods that are the stock in trade of the few who work.

The natives are a friendly lot who smile broadly and thrust out their tongues as a respectful salute to strangers. The Chinese just stare vacantly.

Sometimes, the two peoples of Lhasa seem to be living in different eras. When Chinese soldiers installed telephone lines a few years ago linking the city with the rest of the world, Tibetans playfully followed behind them, draping prayer flags over the wires.

But moments of levity mask the fundamental tension of this troubled colony. Many Tibetans openly hate the Chinese for trampling on local customs, and they long for the independence they had before the Communist occupation 32 years ago shattered their carefree isolation.

What holds these separate societies together is a Communist government in Peking, 1,600 miles away, that justifies its hold here with a self-serving interpretation of history and the military might to back it up.

Rule by force has been the style of governing Tibet since the Red Army annexed it in 1951 to guarantee China's access to its potentially rich mineral resources and strategic benefits.

Chinese soldiers, here to control the population and defend the border with India, ride through Tibetan quarters in jeeps and open trucks. There are an estimated 200,000 troops in Tibet, looking every bit the occupying army. In their green uniforms and reflecting glasses, they swagger through the bazaar in groups of five and six.

The highway bridge connecting Lhasa to the airport is patrolled by soldiers carrying rifles with bayonets, on guard against the kind of violence that reportedly claimed the lives of seven Chinese travelers last spring who, according to informed sources, were robbed and hanged by Tibetan separatists.

Even local Chinese cadres eager to put the best blush on their administration reluctantly concede the dual character of this Tibetan capital of 120,000--a population weighted slightly in favor of the Tibetans when the largely Chinese military is not counted.

"There exists a feeling of separation, but very little," acknowledged Wei Huang, a religious affairs official.

Still, the gap between occupied and occupiers is a sensitive subject, one the Chinese prefer to conceal. The day a party of foreign correspondents came here for a visit, police swept the bazaar clear of beggars, loading 400 to 500 on trucks and dropping them in the city's outskirts, according to witnesses.

Officials contrive historical arguments to establish the legitimacy of Chinese rule, or, as they put it, proof that Tibet has always been an "inalienable part" of China--a point disputed by many western experts.

One official explanation has it that the Jokhang Monastery was built 1,300 years ago to celebrate the marriage of Chinese princess Wen Zhen to a Tibetan king. In fact, the king also married a princess from Nepal, and the temple, with its main door facing west, is generally believed to have been constructed for the Nepalese wife.

"We Tibetans have no say in our own affairs anymore," lamented an unemployed man in the privacy of his home. "Whatever the Chinese leaders say, goes."

Despite a sense of malaise that hangs like a dark cloud over Lhasa, certain material benefits have stemmed from China's colonization.

When Mao Tse-tung sent his Army into Lhasa in 1951, Tibet, then ruled by a theocracy of Buddhist lamas and nobles, had long lost pace with time. There were no roads, no hospitals, no schools, no power plants and no factories. It was said that the only things that turned were prayer wheels--religious objects that look like childrens' rattles.

Tibet had a feudal system in which everyone and everything was a chattel of the Dalai Lama, the spiritual leader who ruled with impunity. Compliant serfs led lives of deprivation, and punishment for the unruly was barbarous, measured in severed limbs and amputated ears.

Three decades of Communist rule have brought a measure of modernity to the Himalayan frontier, once so isolated it took weeks to trek across mountains to the nearest Chinese province.

Now there are highways, although they are used mainly to facilitate military access to this important corridor to central Asia.

Now there are hospitals and nurses, although many people still are seen with bad face sores, infected eyes and respiratory diseases.

Now there are public schools, although 70 percent of Tibetans still are illiterate.

Now Tibetans are in important posts, although they were trained in Communist schools outside the region and are regarded by compatriots as "Chinese puppets."

Now farmers plow the land free of feudal strictures, and factory hands work in plants powered by electricity, although the agricultural and industrial growth since 1959 have barely kept pace with population increases.

Tibet's few hesitant steps forward have been accompanied by the kind of misery that can be understood only by a visit to Lhasa--a city with a wounded soul.

Its great pride, the Buddhist shrines and temples once so grandly cast against the mountain scenery that they inspired the myth of Shangri-La, lie in piles of rubble left by Mao's nihilistic Red Guards. More than 2,000 monasteries were destroyed and religion was banned at the height of the Red Guards' influence in the 1960s.

The Potala, which had loomed majestically above Lhasa as the symbol of Buddhist purity and power, is a gloomy museum run by a Communist curator who admits he knows little of the religion.

The famous Turquoise Bridge, once a graceful structure of enamel and wood that transported nobles and Dalai Lamas from the Potala to the market, is a warehouse reeking of raw sewage that leaks nearby.

Outside Lhasa, the countryside where nine of every 10 Tibetans live is still desperately short of food, according to local sources.

"I pray every day for the Chinese to go away," confided a middle-aged lama, who was crippled by the forced labor and beatings of the Cultural Revolution--one of tens of thousands of holy men persecuted in the name of Communist purity.

The lama may have been heard in Peking. The current government, in power since 1978, is bent on compensating Tibet for its suffering. It has swept away most strictures on religion, spent millions of dollars to rebuild temples, and, in the biggest compensation for Tibetans, promised to pull back most of its Chinese representatives here.

But leaving Tibet to the Tibetans appears to be easier said than done for the unpopular colonizers. Although Peking pledged in 1980 to withdraw 85 percent of its nonmilitary personnel within three years, only 20,000 Chinese--about 17 percent--had left by this month.

Foreign specialists believe Peking may be having second thoughts about diluting its control in a society that continues to reject identification with the Communist state and to harbor dreams of independence.