Administration officials have adopted a metal canister about 35 feet long and 14.5 feet wide as the focus of their campaign to let a free market "commercialize" space, and just to make sure it happens, they have smothered the project in government support.

Even some who like the idea of the private orbiting research laboratory, known as the Industrial Space Facility (ISF), say they are impressed with the ironies that have enveloped it.

This symbol of privatization was singled out by officials for guarantees of up to $700 million in government leasing contracts -- which its developers say they require to obtain investors -- in an arrangement that foresees the government as "anchor tenant," providing as much as 70 percent of the business.

Although no American commercial customers have signed up, government-subsidized European companies have expressed interest, officials say.

"Whatever this is, it sure isn't free market," said space policy analyst John Logsdon of George Washington University.

Philip E. Culbertson, former general manager of the National Aeronautics and Space Administration, said much of the privatization program has been "dreamed up by bureaucrats because they thought it was right, regardless of what was possible. They are ideological zealots."

Culbertson is a consultant and president of the Lew Evans Foundation, which is seeking to promote cooperative arrangements between government and the private sector in space.An Orbiting 'Industrial Park'

The ISF is a materials research laboratory that could be in orbit by 1991, years sooner than NASA's international manned station. Astronauts would visit it by shuttle and tend the experiments two or three times a year.

Conceived five years ago by former NASA engineer Maxim Faget, who played a major role in designing the shuttle, it was to be an outpost that would supplement the much larger and more costly manned space station. A top NASA official described it approvingly in 1985 as the first element in what would someday be an orbiting "industrial park."

When it recently became clear that an American market for microgravity research had not developed, the ISF won such an embarrassment of government support -- and the envy and admiration of other less-favored space entrepreneurs -- that Faget has publicly reminded some of his federal supporters of its limitations. He expressed "distress" regarding those in Congress who champion the ISF as a possible alternative to the manned space station, which he says it isn't.

Senior Commerce Department officials led the way in embracing Faget's Houston-based Space Industries Inc., and its ISF, as the perfect flag-bearer for their push to allow market efficiencies to supplant the government's costly, red-tape approach.

The fact that unnamed companies recently received approval of export licenses from Commerce and Defense department officials so their simple microgravity research experiments can fly on the Soviet Mir space station proves the need for such a facility, one Commerce official said. 'Framework for a Market Test'

Key members of Congress in both parties have expressed enthusiasm for the ISF. But some ISF supporters on Capitol Hill as well as outside analysts say the administration initiative is really a stepped-up government-industry partnership like that favored by Democratic presidential contenders Gary Hart and Walter F. Mondale in 1984. They called it "industrial policy."

The president's broad space policy "creates a reasonable framework for a market test," GWU's Logsdon said. "In other words, the government will help the private sector find out what's out there" in terms of a market.

But referring to the separate commercial initiatives, he added, "The irony is this is all coming from free-market ideologues and what they are really doing is setting industrial policy . . . . These are people with nationalistic and ideological views but little direct knowledge of the space program, trying to shape a commercial policy that does not reflect how the market really behaves."

"This is a hard market to predict, like the energy market in the 1970s," said a key Senate aide who follows space issues. "As far as I can see, the only thing {the administration} has done is switch the pendulum from procurement of hardware to procurement of services . . . . There's a lot more hype than reality here."

He and others questioned why the ISF should get favored treatment.

Administration officials came close to approving the $700 million lease arrangement on a sole-source basis, without competitive bidding, arguing that the top priority is to get a manufacturing-research facility into orbit as quickly as possible to make the United States competitive in microgravity research, as Space Industries is poised to do.

However, sources said, objections from officials of the Transportation Department, NASA, the Office of Management and Budget and to some extent the National Security Council led them toward competitive bidding. The NSC's Col. Roger DeKok, who chaired the space policy working group, helped resolve the dispute and outlined terms that would keep the bidding on a fast track, according to administration sources.

As a result, the ISF was not mentioned by name in the commercial initiatives the White House announced Feb. 11 as an adjunct to President Reagan's revised space policy.

Now officials of Rockwell International and McDonnell Douglas say they are considering entering the competition. A NASA source said Fairchild Industries also has expressed interest. 'No Requirements' for Facility

The administration wants the contract awarded by midsummer, so that the facility is ready for lease in orbit by the end of fiscal 1993. NASA has dedicated a special team to the bidding project.

NASA initially supported the ISF as a complement to its space station but more recently balked at the $700 million commitment, warning that money for the ISF in these tight-budget times likely will come from the manned space station budget and could delay its construction. But NASA lost the battle.

In the process, NASA Administrator James C. Fletcher angered some members of Congress when he stated that NASA could identify "no requirements" for ISF in the early 1990s. If NASA didn't need the small space lab, some critics responded, then maybe it didn't need the larger manned station, which the agency had promoted partly as a microgravity research lab. Some NASA officials say privately that Fletcher's argument was overstated, and a mistake.

In any case, even some ISF supporters in Congress say that the proposed level of government support for the private facility may be too high. "That amount is higher than they'd ever discussed with me," said Rep. Bill Green (R-N.Y.), ranking Republican on the House Appropriations subcommittee that handles NASA funding. "It's something to be negotiated."

"What we bought into is not the ISF situation that exists today," said a Senate aide.

The administration emphasized that its commercialization effort should include "no government subsidy." An administration official said, "One could question whether this violates that criterion."

But policymakers decided it did not, he said, because the government is buying something it needs and that will benefit long-range U.S. interests in international competition.

Describing space as "just a place to do business," Commerce Secretary C. William Verity said, "By buying services, the government now will make the private sector responsible for design, financing, development and operation. This reform will save the government money, reduce the amount of funding it must supply up-front and shift the risk of cost overruns to the private sector." Entrepreneurs' Frontier Optimism

Officials of Space Industries, like many other space entrepreneurs, express a bold frontier optimism.

A favorite analogy of Faget's, which his employees quote often, is that his small facility is like a pioneer settlement in the wilderness, in a place where the government has promised to build a fort -- the manned space station -- and has agreed to purchase furs from the trappers. Once the facilities are working, they say, real commercial customers will be emboldened to follow.

Space Industries has formed a deep-pocket partnership with subsidiaries of Westinghouse Electric Corp. and the Boeing Co. The consortium has invested about $30 million in the space platform so far, sources say.

In its initial form, the ISF is designed to be a science laboratory to grow crystals and produce semiconductor chips, make super-pure pharmaceutical products and study new materials in the unique conditions of weightlessness. American research in the field was interrupted by the 1986 Challenger disaster.

High-cost, high-risk space activities have traditionally been a paradigm for government-managed research and development of leading-edge technologies, which then presumably are "spun off" for the benefit of society. But the only bona fide space industry so far is the communications satellite business.

A number of industry and government experts say the growth of real commercial markets in other areas will come slowly and in unpredictable ways, requiring a large amount of taxpayer support for the indefinite future.

"I think the administration is naive in thinking it's going to happen as fast as they'd like to see it happen," said James J. Harford, executive director of the American Institute of Aeronautics and Astronautics.

"If a private venture can be a success only if government is virtually its total user," Culbertson said, "then we {taxpayers} are going to pay for it one way or another, sooner or later."