KUWAIT, AUG. 2 -- The emir's palace, a symbol of this wealthy but vulnerable nation, became a brutal battleground today -- pounded by Iraqi tanks and artillery and veiled in plumes of black smoke -- as the Iraqi invaders overran the city.

From the seventh floor of the Kuwait International Hotel, a few blocks away from the palace, the day provided a vivid tableau of destruction. The hotel window was, in effect, a front-row seat for witnessing a small nation being crushed by its larger neighbor.

Through most of the day, the fighting was concentrated around the palace of the emir, Sheik Jabir Ahmed Sabah. The emir himself was said to have left the country shortly after the Iraqis came across the border, reportedly for Saudi Arabia.

Kuwaiti people reacted to the invasion with shock and dismay. "We are under foreign occupation!" said one. "Everything will be possible now. Who counted on a foreign invasion?"

At one point early this morning, as Iraqi tanks were storming into the city, a towering column of smoke could be seen rising almost as high as the decorative water towers across the street from the emir's palace. Later, Kuwaiti armored personnel carriers retreated from the palace to the streets near this hotel for what looked only briefly like a last stand.

The Iraqis used air power, but its main purpose seemed to be to intimidate the Kuwaiti defenders. About 8:25 a.m., three Iraqi jets flew over the palace in an apparent scare tactic and then headed north. Two hours later, about 15 Iraqi military helicopters flew near the palace.

The battle on the ground was sometimes hard to see from the hotel, because trees blocked a view of the advancing Iraqi soldiers. But the sounds were unmistakable. Shells exploded regularly around the base of the water towers, some of them igniting new fires. And throughout the day, the sound of machine-gun and mortar fire echoed through the city as a dull percussion accompaniment to Iraq's swift capture of the emirate.

A European ambassador on his way to his embassy this morning said he arrived at the scene of an apparently just-concluded fire fight between Iraqi and Kuwaiti troops. "I could see soldiers being killed 200 yards in front of my car," he said. "I saw corpses being dragged away by Iraqi soldiers and Kuwaiti soldiers giving up."

The fighting around the emir's Dasman Palace started about 6 a.m. and tapered off about 2 p.m. Machine-gun and bazooka fire as well as small artillery could be heard throughout that time, indicating that Kuwaiti forces put up considerable resistance around this symbolic installation.

The U.S. Embassy, which sits in a walled compound a long block from the palace, appeared calm and there were no direct attacks on the building, which did not appear to be heavily guarded.

Elsewhere in the city, Iraqi troops, tanks and armored personnel carriers appeared by early afternoon, the men directing traffic and manning roadblocks. Western diplomats said they were concentrated at key government installations and ministries and that residential areas were left relatively untouched.

Many Kuwaitis, unaware of the invasion, left home for work as normal this morning but were turned away from their government offices by Kuwaiti police roadblocks. The police told some Kuwaitis that Iraqi troops were already in control of their ministries.

Long lines were reported at gas stations and supermarkets this morning, as other Kuwaitis stocked up on vital supplies in anticipation of a long siege. Later in the day, many stayed at home trying to sort out the confusing messages coming to them over the Iraqi and Kuwaiti radio and television stations.

While Baghdad and Kuwaiti radio read a statement at 1:45 p.m. saying that a new Kuwaiti government had been formed by "young revolutionaries" who had invited Iraq's assistance, two hours later Kuwaiti television was broadcasting a picture of Sheik Jabir and declaring its support for his government.

"It's scary," said one Kuwaiti. "It's terrible. The problem is we don't know what to do."

The Kuwaiti International Hotel, which used to be called the Kuwait Hilton, stands across the street from the American Embassy and about 1,200 yards from the water towers and the emir's palace. This morning the staff had all the guests go to the basement for a while when it appeared that the fighting would get too close. Hotel staff placed a large red cross on the roof of the hotel to warn Iraqi and Kuwaiti planes that it was not a government installation and a first-aid room with cots was set up on the first floor.

Most diplomats who were trying to assess the military situation had to depend on their office windows or telephone calls to other people in town, since movement was restricted by Iraqi roadblocks. "It seems the Iraqis are taking over," said one European ambassador. "I can see from my window the tanks loaded on trucks coming down the Fifth Ring Road."

Several members of the British Embassy were blocked from reaching it and attempted to keep track of the invasion by telephone calls. For several hours they were unable to get through to the embassy, where the ambassador also lives, to verify reports that it was under fire.

A Kuwaiti who lives near Mubarak Hospital said he saw a steady stream of cars, ambulances and police vehicles bringing in casualties, mostly civilians. He said Kuwaiti radio had appealed to people to donate blood.

"The streets are in chaos," a Kuwaiti said. "Iraqi troops are moving in the streets, they've occupied a gas station. They're not fighting, but they stopped two or three private cars, threw the people out and took the cars."

This person said that after Iraqi troops seized the Interior Ministry, they drained gasoline from all the nearby cars and knocked on doors of houses in the vicinity, asking for gasoline and water. He said most of the people complied with the request.