The Reagan administration has agreed after long internal debate that the United States cannot live with Nicaragua's Sandinista government until there is fundamental change in its domestic politics, according to administration officials.
Hardening its Central American negotiating demands, the administration has gone beyond its stress on change in Nicaragua's external policies -- its support for leftist rebels elsewhere and its ties to the Soviet bloc.
Now, while those are still major goals, they are seen as byproducts that will occur only when there is basic change in Managua.
Policy-makers are divided, however, on whether change can come under the leftist Sandinista rulers or whether the Sandinistas themselves must be replaced. Everything else, as one high official put it, is "merely tactics" for President Reagan's second term.
The administration is agreed that Nicaragua must have "genuine domestic pluralism" with a free press, unrestricted campaigning by the domestic political opposition, and U.S.-style elections open to anyone -- including, eventually, leaders of the armed rebel opposition known as "contras."
A socialist economy, while annoying to U.S. officials, would be acceptable if political democracy prevails, according to these sources.
If it does not become a model democratic state, as another high administration official put it, "nobody expects that over a long period of time they [the Sandinistas] wouldn't promote external revolution."
The new focus has broad implications for ultimate U.S. action in the area. It ends talk of a possible live-and-let-live approach in which the United States would stop harassing Nicaragua no matter what its internal situation in return for verifiable Sandinista oaths to keep hands off other countries.
It also raises the question of how far the administration is prepared to go to achieve its objectives.
Langhorne A. (Tony) Motley, assistant secretary of state for inter-American affairs, said in an interview that the use of U.S. ground forces is a "boundary" of U.S. policy.
"There are two things the American people do not want," he said. "On the one hand, another Cuba on the mainland of Central America; that is, a Marxist-Leninist regime out there exporting their revolution, creating mischief," and on the other hand "another Vietnam . . .which translates into the ground use of U.S. troops in Central America."
U.S. policy, Motley said, is "inside those two boundaries."
Motley said he would speak only for the record, to distinguish himself from those who "float private agendas" on condition they not be named. He indicated that the administration position followed "a considerable amount of frustration" over Nicaragua's Nov. 4 elections -- which President Reagan called "a farce" -- and over its continuing import of Soviet arms.
"These present another hurdle to a normalized relationship," he said.
The elections, Motley said, prove that Nicaragua's commitment to the terms of the Contadora peace treaty proposal is hollow, a charge Nicaragua denies. The buildup means that any treaty verificction will be "all but impossible," he said.
Other officials concur, and the U.S position in continuing talks has hardened accordingly.
In the White House view now, for example, any serious peace treaty would require hundreds, perhaps thousands, of people to verify compliance.
"We're thinking in terms of the Sinai force; a big, serious operation if it's going to work at all," one high official said, referring to the 1978-79 U.N. peacekeeping effort in the Sinai peninsula. That program involved 4,000 troops at its height.
The faction that sees some hope of converting the Sandinistas to a democratic view, led by Secretary of State George P. Shultz, has been pursuing a normalized relationship through bilateral talks with Nicaragua and in the Contadora negotiations, named after the Panamanian island where Mexico, Colombia, Venezuela and Panama launched the talks last year.
There are persistent reports both that Shultz wants more emphasis on the talks, and that special envoy Harry Shlaudeman, who has met nine times with Nicaraguan Deputy Foreign Minister Victor Tinoco, has been hamstrung in his talks by negotiating limits imposed on him from above.
These are said to be authored by the hard-liners, allegedly led by Deputy Defense Secretary Fred C. Ikle and CIA Director William J. Casey, who think there is little point in talking to communists since any agreement will be violated.
But State Department officials who are viewed as moderates and others involved in the talks vehemently deny the reports.
No matter how officials feel about the value of negotiations, they agree that continued military pressure on Nicaragua from the contras is critical to further progress, either to induce negotiating concessions or to provoke a domestic rebellion that ousts the Sandinistas.
Critics of the contra program in Congress and in Central America, including former Nicaraguan opposition leader Arturo Cruz, have said that the contras have made the Sandinistas more intransigent, enabling them to dismiss all their domestic critics as U.S. puppets.
An influential administration official acknowledged some truth in that, but said it meant the Sandinistas "are that much closer to cracking" under the strain of persistent conflict and a crumbling war economy. Others say repression would be worse without the contras.
Therefore, any sign that the rebel attacks are faltering will bring a review of overall U.S. policy, several officials said.
At the moment there is no such sign, although Congress officially ended U.S. covert aid last May after providing about $75 million since late 1981. Congress will reconsider Reagan's request for another $14 million in covert aid for the rebels in March, but its chances are considered slim.
As part of the policy shift, there is a new pitch to Congress for renewal of contra aid. For the first time, the Sandinistas are being painted as a direct, Soviet-backed military threat to Honduras, El Salvador and Costa Rica.
Motley noted that Nicaragua has 120,000 armed soldiers to defend a population of 3 million, while Mexico, with 69 million people, has about 62,000 troops. Officials say this is to intimidate Nicaragua's neighbors, either to keep them from backing U.S. goals in the area or to make them support a treaty more favorable to Nicaragua.
Asked for evidence that Nicaragua has territorial designs on its neighbors, Motley said only that the new arms "give them the tools" for such a policy.
"I don't think it would be in their best interests, but people don't always act in their own best interests," he said.
Nicaraguan officials have said they need the arms to defend themselves from increased contra activity and from U.S. threats.
Officials said their argument on Capitol Hill will be that only military pressure from the estimated 12,000 contras got Nicaragua to hold elections and brought it to the regional bargaining table in the first place, and that only more force will win further concessions.
The rebels say they are receiving adequate support from private individuals, but sources watching them closely say they could experience serious financial, logistic and morale problems by next spring without further U.S. aid.
In the administration view, time now is on the U.S. side. Officials have declared victory in El Salvador with the ascension to power and popularity of President Jose Napoleon Duarte, despite continued leftist guerrilla attacks in the countryside and continued army casualties of five to 15 per day.
"We've turned the corner there," one official said. "Aid to Duarte is dead as an issue in Congress."
Talks with Honduras will seek to soothe feelings ruffled by too much U.S. military exercising and too little economic aid, but the Hondurans' desire for a special mutual defense pact outside the Rio Treaty will probably be muffled in dollars, as one official put it. The new stress on Nicaragua's intransigence will be used to justify further militarization.
Only Nicaragua remains a major problem, in this view, and the contras are the key to solving it.