Out of the Midwest, a place seemingly removed from the cultural and political currents along the West and East coasts, have come free-soil liberals, prairie populists, isolationists and the Republican Party.

And here, in the territory where the Republicans were born, in the year in which they are resurgent and seeking a new majority status, lies a political paradox:

On the evidence in Rockford, the Republicans more than the Democrats may be battling for the soul of their party after the election.

Here, in the area where Ronald Reagan grew up and where he remains a hero politically and personally, lifelong Republicans who regard themselves as moderates or conservatives say they are worried about the ideological direction of their party after 1984.

They draw a sharp distinction between support for Reagan's economic or foreign policy positions and the New Right social agenda that has dominated much of the political discourse in this campaign. They reject as divisive, in their city and in the country at large, what they see as the extreme views of the religious right.

Typical of their comments was the remark of a leading Republican official here. The occasion was a Republican fund-raiser at the Rockford Country Club for Sen. Charles H. Percy's reelection campaign.

"If you're going to quote me, I'm not going to say anything," the official said, "but it's not Mondale and the Democrats I'm worried about. I'm worried about the fundamentalists, the born-again Christians. They're the fervent people, and they are the ones that are flocking to this campaign. That's what worries me.

"They are the source of our most dedicated volunteers in the campaign, and they know exactly why they're there and what they intend to the do in the future. They just take over. I see them driving out moderate Republicans like me.

"I have to tell you that I worry about what happens to my Republican Party after this election. I wonder if there's going to be a place in it for people like me."

This was no isolated remark, nor one without significance in the political stakes for 1984 and beyond.

A doctor, more strongly for Reagan now than a year ago, was extolling the president's overall record during a living-room conversation with a group of friends and neighbors the other night. Many were prominent Republicans. They agreed when the doctor described the GOP as "the party of opportunity."

But then he quickly added, with equal conviction: "I'm totally opposed to Reagan's position on abortion and absolutely opposed to school prayer."

There was wide agreement with him on that, too.

Apparently reinforcing these kinds of feelings is Rockford's recent and difficult experience.

A manufacturing center 80 miles west of Chicago, Rockford suffered as brutal a blow from the recession two years ago as any city in the nation. Now it has bounced back strongly, making it appear almost a reflection of the Reagan reelection campaign theme of "bringing back America."

But the process of coming back economically was not easy. This is a blue-collar city, the second-largest in Illinois, and one with with diverse ethnic, racial and religious strains. It required all of the disparate parts of this community to work together to pull themselves back. What one hears here is concern that the strident single-issue political agenda of the New Right is divisive.

At this point in the 1984 election, these doubts and concerns do not appear to have much impact on the way Republicans plan to cast their presidential ballots on Nov. 6. But it has affected how some plan to vote -- Bill Bowen, for example.

Bowen is a native midwesterner, the principal of Rockford's East High School and a person who takes citizenship seriously. A year ago he was a Reagan supporter and spoke positively about the president's leadership. Now he's changed.

"I was inclined to vote for Reagan," he said. "I voted for him last time, but I got turned off. He was pretty tough on education, and I have a sinking feeling we're not out of that tuition tax-credit business yet. And personally that would be awful for public education. We have enough problems now without that. So I started worrying about that. And I started worrying about the seemingly undue influence on the Reagan administration from the very far right-wing TV preachers, the electronic preachers.

"That started getting to me, and so did the business about the Supreme Court justices and the plank in the Republican platform on that. I spent a lot of time watching the Republican convention on TV, and it seemed like the preachers had a lot of political influence and were going to have more. And I don't like that. I'm suspicious of those guys anyway."

Reagan runs far ahead of Walter F. Mondale here, and his popularity strengthens Republican propsects all down the line. And the optimistic tone that now pervades conversations here dramatically differs from the bleak self-portrait drawn from numerous interviews a year ago when a team of Washington Post spent days talking with a cross-section of Rockford's citizens.

All this explains why Reagan and the Republicans are doing better today than during the height of the recession when Rockford stood No. 1 in the nation in unemployment.

But something else bears on Republican fortunes here: a striking agreement on support for Reagan personally but not necessarily for how he addresses major issues.

Virtually without exception, the city's business and political leaders are worried about the federal budget deficits, the strong U.S. dollar that hurts American exports, such as the machine tools made here, and the prospect of another surge of high interest rates and renewed inflation that could batter Rockford again. They don't give Reagan high marks for his handling of these issues.

Rockford's Mayor John McNamara talked about these concerns:

"Illinois is the nation's largest exporting state. Rockford has a lot of products to be exported, and we should have more. The deficits and the high value of the dollar certainly pose a big threat to that prospect. The deficits are a significant problem for Rockford, and that's clearly appreciated in the business community. I don't know if it's appreciated so much on the street."

McNamara and others point to something else about Rockford's experience that applies to the nation at large. When the recession hit so devastatingly here, Rockford went into a period of retrenchment and despair. McNamara, a Bronze Star veteran of Vietnam and former public defender, boldly proposed a plan to help get Rockford back on its feet.

In sweeping rhetorical terms, he went before his City Council and said: "These drastic times require new and dramatically different approaches." At the heart of his ambitious plan to rejuvenate Rockford, retrain workers, attract new industries and ensure "jobs for our people," was an acknowledgment that taxes would have to be increased.

Voters dealt that plan a crushing defeat. Not only did they reject new taxes; they passed a referendum stripping the city of its home-rule powers under the Illinois constitution and mandating an immediate $8 million rollback in property taxes along with a 16 percent cut in the city's operating budget.

The tax-cut rebellion, the centerpiece of the "Reagan revolution," was solidly entrenched in Rockford. Or so it seemed.

But that's not how the story ended. Since then, and despite the loss of 10,000 jobs that have disappeared permanently from this community's economic base, the people of Rockford have voted a series of major tax increases -- for schools, for police and fire departments, for libraries, for other city services.

What's more, to hear people tell it, part of the new pride and sense of optimism about Rockford's future comes from the realization that the citizens faced the hard questions -- and said they were willing to pay a higher price in the form of increased taxes in hopes of providing a better future here. Passage of the big school-tax referendum is cited everywhere as a turning point for the city.

In this, too, Rockford's attitudes suggest something about whether Reagan is leading the Republicans on a course the country will continue to follow.

"I wrote an editorial after Reagan's election in 1980 that suggested this might be another watershed election similar to Franklin D. Roosevelt's," said Chad Brooks, veteran editorial page editor of the Rockford Register Star. "And I think that's what he's tried to create, but I don't think it has taken. It's the personality of one man that matters most instead of some realignment of the political parties and the voters. It's been a personal accomplishment but nothing the Republican Party can continue to live on after Ronald Reagan.

"If anything were to happen to turn the voters off of Reagan as a person -- and I can't really imagine that happening, although the age factorconceivably could do that -- all bets are off for the Republicans. There's nothing there to back him up.

"NEXT: Reagan and the Winds of Waterloo.