Arizona Gov. Bruce Babbitt (D) said yesterday that advocates for children's programs are fighting the "greatest moral cause in this country," but warned that they cannot "walk up to Capitol Hill with a seed catalog" of demands that all federal programs be preserved.

"You are going to have to make choices," Babbitt, an unannounced but presumptive presidential candidate, told a Children's Defense Fund conference. "The important thing is to define not 70 programs, but seven programs. . . the important ones are the entitlements."

Babbitt proposed that Medicaid be expanded to provide health coverage to every woman and child below the poverty line, that the federal government provide a day-care entitlement to every working parent and that federal nutrition programs be better funded to cover all pregnant women in need. All other major initiatives for children, he said, should come from state and local governments.

The message was vintage Babbitt -- both in substance and setting.

While some other members of the Class of '88 are lining up precinct workers in New Hampshire, Babbitt has passed up the political circuit to play to the "issue constituencies." While some others say it is too early to offer specific programs, the two-term governor, who is retiring this year, has begun laying out a detailed platform -- one which is often at odds with his party's orthodoxy.

"We are message compulsive," quips Fred DuVal, executive director of Babbitt's political action committee, who calls his boss a "radical centrist." Babbitt's most heretical proposal is that all government assistance -- Social Security, farm credit programs, tax deductions for home mortgage interest, whatever -- be targeted to need.

He was an early proponent of taxing the Social Security benefits of the well-to-do and now recommends that the tax enacted in 1983 be applied to 100 percent of elderly income above $25,000, as opposed to the current 50 percent, with the added revenues returned to the Social Security system. He supports the Reagan administration's proposal to provide universal catastrophic-health coverage through Medicare, but said the elderly poor should be spared any premium increases, while the well-to-do elderly should be taxed for the value of the coverage.

Conventional Democratic wisdom holds that such parsing of benefits along income lines would, over time, erode the popularity of these programs -- stigmatize them as "welfare."

Babbitt, a one-time antipoverty worker who has governed as a fiscal conservative, counters that government no longer has the wherewithall to buy middle-class support in this fashion. Last year, Babbitt devoted his entire state of the state address to poor children -- not exactly a front-burner issue at the time. But eventually he persuaded what he described yesterday as a "conservative, Republican, Sun Belt legislature" to spend $32 million for new children's programs. This year, he is back asking for more.

Limiting government benefits to those who need help may be the issue that Babbitt is using to separate himself from the crowd, but it's only one of roughly a half dozen he plans to emphasize.

He is an avid environmentalist (he grew up near the Grand Canyon in a prominent Arizona ranching and mercantile family); he opposes protectionist and bail-out proposals to prop up industries (he was lukewarm toward measures proposed to rescue the state's copper industry); he argues that trade imbalances should be eliminated through a new round of multi-national trading agreements; and he says that the administration's policy in Central America is wrong-headed.

This month Babbitt made headlines when he suggested that some in the Reagan administration were hoping for a fatality among the National Guardsmen they have been sending to Honduras, because it would provide a pretext for the full-scale invasion of Nicaragua he says the administration wants to mount. (Babbitt permitted the Arizona National Guard to go on the exercises, explaining that he thought that they would not be in danger or contribute to the war effort. His critics found the reasoning strained.)

The National Guard comment was calculated and characteristic. Though his personality is cerebral, analytic and, some say, a bit standoffish, Babbitt has an admitted fondness for the provocative. "The Democratic Party," he said, "is crossing, however uncertainly, into some post-New Deal configuration. . . . I celebrate the confusion of the hour . . . . Let a thousand flowers bloom."

Just where Babbitt will find his place among the flowers is far from clear. His notices as a stump speaker are lackluster. But he does well in small groups and is serious about the task at hand. In addition to setting up his political action committee, he has a formed a tax-exempt foundation to churn out research on issues. By 1987, he said, he'll make a decision about the presidential nomination fight.

Meantime, he has begun to bring some veterans of 1984 presidential campaigns on board -- including press secretary Michael McCurry, who worked for Sen. John Glenn (D-Ohio) and, in the general election, Walter F. Mondale, and media consultant Sergio Bendixen, who was the chief political adviser to Sen. Alan Cranston (D-Calif.). And Babbitt's abstinence from the national political circuit shows signs of weakening. This spring, for example, he's planning to take his message to New Hampshire.