Iraq's swift, stunning victory. The Iraqi blitz at Faw caught Iran and Western diplomats by surpise. A battlefield report reveals even Baghdad was astonished at the speed of its success. For Iran, the defeat is a major blow militarily and to morale at home.

Iraqi forces are busy consolidating their grip on the Faw Peninsula, after scoring last week what diplomats and analysts in Baghdad agree was their most impressive and significant battlefront victory in six years. Scores of Iraqi bulldozers are already hard at work removing the debris of battle and arranging new defensive lines across the peninsula's salt flats, dusty plains, and palm groves.

The Iranians have all gone, pushed back across the Shatt al Arab waterway into Iran itself. But the traces of their two-year occupation have not yet been erased.

In and around the peninsula's port town of Al Faw, walls and billboards are daubed with revolutionary Islamic slogans in Farsi, the language of Iran, as well as more mundane inscriptions advertising local stores.

Huge portraits of Ayatollah Ruholla Khomeini and his successor-designate, Ayatollah Hossein Ali Montazeri, still frown down from the walls of Al Faw. But their faces have been partly obliterated by gunfire from the jubilant Iraqi troops.

The signs on the ground bear out the version of the battle given by Iraqi officials and commanders. Along the former Iranian front line, running across the peninsula to defend the Iranian-occupied southern half, wrecked Iranian tanks and other vehicles litter the chewed landscape.

Behind that line, the indications are that the Iraqis were able to make a swift advance before meeting heavier resistance around an Iranian headquarters west of Al Faw. The Iraqi 7th Army Corps had the tough task of fighting its way down the Shatt al Arab waterway toward Al Faw through dense palm groves. At Al Faw, it met up with elite units of the republican guards, who had advanced down the west side of the peninsula to its tip at Ras al Bisha, then turned and headed up to Al Faw.

The charismatic commander of the 7th Army, Gen. Maher Abdul Rashid, said the battle was decided in its opening phase.

``The enemy collapsed after about six hours,'' he said at his headquarters. ``The officers deserted their posts, and the troops fled in disarray. It took us about 36 hours to win complete control of the peninsula.''

Diplomats and military observers in Baghdad believe that the element of surprise was a key factor in Iraq's swift and stunning success. ``It was a well-planned, well-executed operation in difficult terrain,'' a military observer said. ``The Iraqis achieved total surprise.''

The element of surprise was twofold. This was the first real offensive the Iraqis had launched since they pulled out of Iran in 1982 and adopted an essentially defensive battlefront posture.

``The Iranians had become so used to the Iraqis playing a passive role,'' one Western diplomat said. Another added: ``This attack was out of character for the Iraqis.''

Across the board, diplomats in Baghdad concede that they too were taken by surprise, both by the Iraqi action and by the speed of its success.

The Iraqis achieved tactical surprise too. The day before the offensive was launched, the defense minister, Gen. Adnan Khairallah, paid a well-publicized visit to the northern front, where Iranian troops and Kurdish guerrillas had been making recent probes.

The day before that, President Saddam Hussein himself was also in the north. The battle for Faw Peninsula, launched on the night of April 16 and 17, also came on the eve of the Muslim holy month of Ramadan.

Military analysts believe another explanation for the extraordinary speed of the Iraqi victory is that there were far fewer Iranian troops there than was generally thought. The conventional belief before the battle was that Iran had about 50,000 men on the peninsula. In the wake of the fighting, estimates have been revised downwards to 10,000 to 15,000 or even less.

Despite Iranian accusations, Western observers do not believe the Iraqis used chemical weapons to aid their offensive. ``They had no need for that, and there seems to be no evidence of it either,'' said one military analyst after visiting the area. Neither is much credence given to Iranian claims that Iraq was allowed to use Kuwait's nearby Bubiyan Island - and none at all to the Iranian charge that US helicopters joined in the attack.

Their victory has clearly given the Iraqis a major boost, though Western observers in Baghdad doubt that they will be able to pull off similar coups in the future, because the element of surprise has been lost.

By the same token, the loss of Faw Peninsula is being seen as a major blow to the Iranians. ``Faw was the most significant piece of territory the Iranians had for all their offensives in recent years,'' a diplomat said. ``What do they tell their populace now?''

Last summer, Iranian leaders began heralding a major battlefront campaign which never materialized amid signs of a sluggish response to their call to arms. When Iraqi missiles fell on Tehran during the latest round in the war of the cities, Iranian leaders declared: ``Our answer will be on the battlefield.''

Military analysts in Baghdad believe the Iranians may now try to find a way to salvage their honor. But they say that Tehran has few options. Even in the north, the Iranians are believed to lack the logistics to mount a serious threat to the regional center, Sulaymaniyah, far less to the major oil fields at Kirkuk.

With Iraq suspending the war of the cities last Wednesday, the focus may now swing back to the United Nations' efforts to advance a diplomatic solution - with Iraq now looking a lot better than it did a month ago, when it faced strong criticism for its reported use of poison gases at the Kurdish town of Halabja, and for escalating the war of the cities.

``The Iranians are now back to where they were before Halabja, or even worse,'' said a Western diplomat, pointing to Iran's defeat at Faw Peninsula, its drubbing at the hands of the US Navy in the Gulf, and its reported involvement in the hijacking of the Kuwaiti airliner. Some diplomats fear that, with no other effective option open to them, the Iranians may resort to sponsoring further acts of terrorism.

Iraq's recapture of Faw Peninsula has also come as a relief to Kuwait, ridding it of new neighbors it would clearly prefer to do without.

The Iranians' occupation of the peninsula had brought them within sight of Kuwait's Bubiyan Island, and allowed them to bring Silkworm missiles within range of Kuwait City and its oil installations, which were the target of six such strikes last year.

But the Iranians are believed still to have about 40 of the longer-range Scud-B missiles in their arsenal. They fired one at Kuwait last Wednesday. It was not clear whether this was intended as a reprisal for the loss of Faw Peninsula, or for their bruising encounters with the US naval forces.