Morocco Winning Hearts and Minds. Rabat's liberal spending in disputed territory woos residents away from Polisario. WESTERN SAHARA: FROM WAR TO REFERENDUM

RISING out of the rocky, windswept Saharan desert, La'Youn's ornate public buildings, five-star hotels, and 30,000-seat sports stadium seem dramatically out of context. Fifteen years ago this former capital of the Spanish Sahara, one of Spain's two African colonies, was little more than a rude frontier village.

Transformed by nearly $1 billion in Moroccan aid, it is now a gleaming model city of 90,000 - and a symbol of the sophisticated tactics that have brought Morocco to the brink of victory in its 13-year war against Algerian-backed guerrillas to gain permanent control of the Colorado-sized swath of desert on which La'Youn sits.

``The Polisario movement has had it,'' says long-time Morocco-based journalist Stephen Hughes of the imperiled fortunes of the guerrilla movement that has been fighting to make the Western Sahara an independent nation. ``It's all over but the shouting.''

Citing historical rights going back to the 11th century, Morocco annexed the Western Sahara in 1976.

To make good on its claim of sovereignty - which no country recognizes yet - Morocco has fought a costly war against the Polisario rebels, who operate from bases clustered around the Algerian border town of Tindouf.

Simultaneously, Morocco has sought to win the hearts and minds of residents of the Western Sahara against the day, perhaps not far off, when they will vote either for independence or affiliation with Morocco.

Following the massive transfusion of Moroccan aid that has made La'Youn a showcase in the wilderness and its citizens the beneficiaries of free education and health care, the outcome seems hardly in doubt.

``We're part of Morocco. We always have been. We always will be,'' says one college-age La'Youn resident, speaking in the presence of a Moroccan official.

New highways and TV hookups with the north have largely completed what one Western source calls ``Moroccanizing'' the Western Sahara, making its incorporation nearly a fait accompli.

In the long war of bullets and words, the guerrillas have charged that two-thirds of residents of the Western Sahara are Moroccan immigrants who, under Morocco's own suggested guidelines, would be barred from voting in a proposed United Nations-sponsored referendum. Moroccans respond that most Polisario leaders are themselves Moroccan-born, diluting claims that the Polisario is an authentic national liberation movement.

At stake is a region rich in phosphates (used in fertilizers), and largely untapped fishing resources off its long Atlantic coast.

The Polisario's position was bolstered by a 1975 decision by the International Court of Justice denying Morocco's claim of sovereignty over the Western Sahara.

Meanwhile, some 71 countries, most African, have recognized the Polisario's government-in-exile, the Saharan Democratic Arab Republic, as the legal government of the disputed area.

But legal and diplomatic support have been insufficient to offset Morocco's preponderate military might.

Morocco has used its estimated 120,000 troops to construct a 1,200-mile wall of sand and barbed wire that now encloses 80 percent of the Western Sahara. The desert wall has cut off the estimated force of 4,000-8,000 guerrillas from the population it purports to represent.

The resulting stalemate has opened the door to diplomacy. Last year, the UN tabled a plan calling for a cease-fire, the dispatching of an interim peacekeeping force, and an eventual plebiscite to allow the 120,000 inhabitants of the Western Sahara to decide their own future.

The UN is now working on the details of holding a referendum. Morocco's King Hassan II met with Polisario representatives twice in February. A third meeting was postponed but is expected to be rescheduled.

One sticking point has been the modalities of the voting. The Polisario has insisted that Moroccan troops and administrators evacuate the territory in advance of a referendum, arguing that no fair election can be held if the region is under occupation.

Such proposals have been greeted in Morocco with universal disdain. ``In other words, abandon the provinces and allow the rebels to install themselves in the vacuum,'' said Abd Ar-Rahim Bouabid, leader of the opposition Socialist Union party, at a public meeting.

In the end, the question of modalities may prove academic as the vital life signs of the guerrilla movement grow weaker.

One Western military source notes that while in 1987 the guerrillas mounted major offensives to penetrate the desert wall every six to eight weeks, only three such attacks occurred last year while none has been launched in 1989.

Meanwhile, the absence among Western Saharans of anything like the nationalist feelings that have fueled the Palestinian uprising against Israel is suggested by the fact that in 13 years no terrorist attack has been launched against Moroccan soldiers in the Western Sahara or targets inside Morocco.

The most recent blow to the Polisario's hopes was delivered last spring when Algeria restored relations with Morocco and later joined Morocco and three other countries in signing a treaty calling for greater Maghreb (North African) political and economic unity.

While Algeria still provides staunch rhetorical support to the movement it claims is the only authentic voice of the Western Saharan people, few doubt that the Polisario cause has now been sacrificed to larger interests.

Unconfirmed reports from Western sources indicate that Algeria is now recalling arms given to the guerrillas.

Moroccan and Western sources assume the existence of a tacit agreement by Algerian President Chadli Benjedid to withdraw support from the rebels and allow the UN to get on with negotiating a political settlement.

``It's a death sentence for the Polisario,'' says one Moroccan source of the treaty signed between Algiers and Rabat.

In La'Youn, meanwhile, where Moroccan money has largely settled the matter of political loyalties, the war now sputtering to an apparent conclusion seems a distant matter.

``More people talk about fishing, business, and football,'' says a construction worker. ``The war, that's just something we read about in the newspapers.''