A move toward limited political liberalization appears to have strengthened the beleaguered government of Gen. Augusto Pinochet, but the prospect of a peaceful settlement of Chile's political crisis has dimmed with the continuation of mass protests and the government's evident ambivalence over its new course.

After months of unsuccessfully seeking to halt a growing opposition movement with familiar authoritarian measures, Pinochet will celebrate the 10th anniversary of his rise to power Sunday with a hastily adopted official image of conciliation.

Troops used to repress opposition demonstrations in July and August have returned to barracks and restrictions on some protests and the press have been eased. More than 2,000 political exiles have been authorized to return, and Interior Minister Sergio Onofre Jarpa has opened talks with opposition political parties on a gradual government move toward democracy.

The negotiations and political relaxation offered Gen. Pinochet the prospect of ending four months of political crisis while preserving his rule at least until 1989, as planned. Centrist opposition leaders temporarily set aside their demand that Pinochet resign immediately, and armed forces leaders--clearly restless after carrying out measures of violent government repression in August--lined up behind the new political strategy.

Following a renewal of protests and 10 more deaths in political violence this week, however, Pinochet appears to remain a ruler controlled by a week-to-week struggle for survival. Yesterday, the opposition Democratic Alliance suspended the political talks, citing continued government repression, belligerent rhetoric by Pinochet and Jarpa and the government's failure to establish a concrete agenda and timetable for negotiations.

Moreover, government officials and opposition leaders agree that the continuing mass protests--only partially controlled by political parties--are primarily motivated by economic rather than political conditions. As the recession continues, the government's search for solutions has only divided its leadership.

"There has been a lot of short-term maneuvering on the political front," said Julio Stuardo, a leader of the Democratic Alliance and Chile's resurgent Socialist Party. "But no one is touching the roots of the popular discontent. Pinochet is being weakened and cornered."

Pinochet, 67, has frequently appeared in recent weeks to be the most serious obstacle to a successful political readjustment by his government. While Jarpa, a veteran right-wing Nationalist Party politician, has campaigned for a limited move toward democracy, the general has seemed hesitant and uneasy.

A self-described "soldier," whose distaste for politics has not mellowed, Pinochet has downplayed several of Jarpa's public pledges. He has also abandoned moderate discourse for harsh threats of a new military-backed crackdown.

"I have the force and if the thing spreads and they push me and push me, look out," the general declared to journalists. "We are going to arrive at a state of siege--and tougher than before."

A string of such comments in the past two weeks has convinced many Chilean analysts that Pinochet has adopted Jarpa's liberalization program under pressure from other armed forces leaders who see it as the only hope of preserving military government. The speculation has increased with private hints by Jarpa and his political associates to politicians and journalists that the interior minister has his own base of support in the armed forces. "There is a feeling that the Army may back Jarpa's program more than they back Pinochet," said one well-informed progovernment analyst.

Publicly, Jarpa strongly denies such reports. "Get it out of your heads that Pinochet is going to resign," he said in a press conference for foreign journalists. "I carry out orders of the president. In this team the president commands and the ministers obey, so there cannot be divisions."

Whatever the internal dynamics of the new political effort, it appears to have eased rising unrest in the traditionally hermetic ranks of the military. Following violence that led to at least 24 deaths in August's protests, The Air Force commander, Gen. Fernando Matthei, publicly disclaimed responsibility of the Air Force in the repression and added that "it is time to open a political debate."

After the initiation of liberalization and Jarpa's talks with opposition leaders, however, Matthei told Pinochet in a public ceremony late last month that he counted on "the iron unity of the armed forces . . . behind your political leadership and in the road and route sketched out."

To a lesser extent, the offer of political conciliation has also eased the pressure on Pinochet from the Democratic Alliance.

Formed only in August, the alliance has sought to gain control of a largely undirected popular protest movement with a leadership that unites the centrist Christian Democrats with left-of-center Radicals, Socialists and elements of the traditional political right. The well-organized Communist Party was excluded.

The alliance began with a public call for Pinochet's resignation and a strategy of mounting protests it hoped would force the armed forces to act. The escalating violence of the protests and Jarpa's offer of conciliation, however, have brought both uncertainty and the danger of division to the alliance's unwieldy coalition. Its more moderate leaders, worried that the protest movement may lead to a social explosion they cannot control, have appeared eager to reach a political settlement with the government--even if it means that Pinochet remains in power.

"We are fighting for the return of democracy," Radical Party President Enrique Silva Cimma said. "That does not mean you can't go along obtaining a series of intermediate things that are important." The possibility of accepting Pinochet's continued rule, Silva said, "is a point that I could not answer yet." Leftist leaders do not accept these arguments, but the alliance as a whole set aside its demand for Pinochet's resignation during its first two meetings with Jarpa.

Although more militant leaders accepted the temporary move, many analysts believe the coalition could split if talks resume.

Above all, the prospect of political peace has been eroded by the continuing mass protest movement, which appears solidly based in the working-class and poor neighborhoods of major cities.

Opposition leaders, although worried about the consequences of the violence, maintain they may not have the strength to end the protests. They began almost spontaneously last May following an appeal by labor leaders. Political groups that do not continue to support some kind of demonstrations, they say, may be swept aside by the public.

"The moderate sectors are very aware that this is something that cannot easily be stopped," said Jorge Onoso, a Christian Democratic organizer. "So they are being forced to radicalize by what is happening. There is a feeling that even if there were a political settlement, the protests would go on with the extreme left, or even spontaneously."

The economic crisis has raised unemployment to more than 30 percent nationally and as high as 80 percent in poor urban areas. There is little prospect of quick economic improvement.

The economic problem has appeared to divide the government and its supporters. Jarpa is known to be pressing for the removal of Pinochet's economic team and the adoption of strong state-directed efforts to stimulate at least temporary recovery. Those policies have been long resisted, however, by military backers of the conservative, free-market policies.

"Most of the people protesting don't care about whether political parties have more rights," said one Radical Party activist. "Their problem is they don't eat, and as long as that is true, there will be no solution to the political problem."