Just over eight years ago, Franjo Tudjman embraced the politics of nationalism, inspired Croatians to take up arms and orchestrated Croatia's violent separation from the communist-led Yugoslav federation. His eventual triumph came at a price of thousands of lives and billions of dollars in damage to Croatia alone.

As Tudjman built the first sovereign Croatian state since the Middle Ages, he earned the reverence of its citizens. But he also engendered public disdain by harassing his political opponents, imposing tight controls on the media and promoting policies that stunted the economy.

Tudjman's death at age 77 on Friday after a lengthy illness has opened the door to major political reform here, many analysts and diplomats say. If, as some here anticipate, a loose-knit coalition of opposition parties wins a parliamentary election scheduled for Jan. 3, the country may finally begin to negotiate the bumpy road to democratization and economic liberalization already traveled by much of Eastern Europe.

Alternatively, some analysts here say, the governing party might be able to capitalize on the brevity of the election campaign and national pride in Tudjman's accomplishments and thus cling to power. It might then retain at least some of the policies that have isolated Croatia from the West and stifled foreign investment here. Either way, the consequences of the January vote are likely to be felt throughout the Balkans.

Tudjman and his party had tried to undermine a complex multiparty peace accord in neighboring Bosnia by forging tight political ties with territory there in which Bosnian Croats constitute a majority--seeking, in effect, to annex it. But with the passing of power to a new generation of Croatian leaders, diplomats said they hope there will be less meddling by Zagreb in Bosnian affairs, a shift that may reduce ethnic tensions and contribute to political stability in Bosnia.

At best, the transfer of power may bring an end to nationalist ambitions for "a greater Croatia," Austrian diplomat Wolfgang Petritsch, the West's top representative in Bosnia, said in a recent interview in Sarajevo. That would in turn mean that Bosnian Croats "would have to concentrate on being here," instead of trying repeatedly to break up the Bosnian federation by blocking the formation of national institutions that include both Croats and Bosnian Muslims.

The West's reproof of Tudjman's policies and its wary approach to the forthcoming vote were clearly in evidence today, as few high-level foreign dignitaries prepared to attend a state funeral for Tudjman set for Monday. No government officials were dispatched from Washington, Paris, Berlin or London, for example--not even Richard C. Holbrooke, the U.S. envoy who won Tudjman's approval of the 1995 Dayton accords, which ended the Croat-Muslim-Serb war in Bosnia.

Only Turkey, Hungary and Macedonia are sending their top elected officials; Italy, Austria, Finland, Poland, Greece, Bulgaria and Slovakia have dispatched more junior representatives.

Nonetheless, thousands of mourners from around the country paid homage to Tudjman today, filing stiffly past his coffin at a palace once used by Tito, founder of the post-World War II Yugoslav federation. Tudjman's body lay behind a display of more than 20 medals he had been awarded as a military and civilian leader and a table of flowers arranged in red and white--the national colors. Prominent Croatian politicians served as honor guards, standing at attention with their backs straight and marching like soldiers as they came and went.

Hundreds of other citizens laid candles at St. Mark's Square in the city center, in front of a church whose roof tiles were emblazoned with the national emblem.

At an evening ceremony organized by the Croatian Democratic Union, Tudjman's party, interim President Vlatko Pavletic lavished praise on Tudjman, calling him "daring, resolute, focused, unstoppable." Other officials praised his leadership during Operation Storm, a military operation carried out with U.S. assent in August 1995 in which the Croatian army reasserted its control over the entire country by driving more than 300,000 Serbs from territory they had seized control of earlier in the decade.

Roman Catholic Archbishop Giulio Einaudi, the papal nuncio here and the senior diplomat in Zagreb, told the assembled crowd that the church had enjoyed the hospitality and support of Tudjman--an avowed atheist who nonetheless welcomed Pope John Paul II here on two occasions. Tudjman himself, in a film prepared before his death, called for more spirituality as he celebrated what he called the Croatian renaissance. "We finally have Croatia the way we want it, not the way other people think it should look," Tudjman said triumphantly in the film.

Before Tudjman's death, however, roughly two-thirds of Croatians polled here by the International Republican Institute said they were ready to oust Tudjman's party from power. The respondents cited their dissatisfaction with the government's handling of the economy, which entered recession last year after a long period in which Tudjman's family, friends and supporters enjoyed an enormous burst of prosperity--by some accounts totaling hundreds of millions of dollars.

Yet the employment rate in manufacturing jobs is lower than it was a decade ago--before Croatia parted from Yugoslavia--foreign investment has been falling, and privatization of state assets has been limited, confined mostly to insider dealing, according to a recent report by the European Bank for Reconstruction and Development.

Tudjman "left Croatia as a multiparty state, with a new constitution and many institutions we didn't have before," said Drazen Budisa, the leader of the opposition Social Liberal Party. "But he also left Croatia in a very poor political, economic, and social state . . . in a degree of isolation." Budisa said he feels confident that after the January elections, Croatia will look to the future, because it is "at the end of its own past."

CAPTION: Croatian opposition leaders stand beside President Franjo Tudjman's coffin. Two-thirds of Croatians polled recently said they were ready to oust Tudjman's party.