As a band of camouflage-clad soldiers struck up a tune on the steps of the church, peasants lined up on the other side of the town square for handouts of food, clothing and medical services. All the while, a voice on a loudspeaker reminded the peasants that the sponsors of this festive "civic action" were the Armed Forces of El Salvador.

"If we are united," the voice said, "we can overcome the terrorists" - the guerrillas of the Farabundo Marti National Liberation Front (FMLN).

"The guerrillas say this is an acceleration of the war," said Col. Mauricio Vargas, the army's commander in Morazon province, a region of arid mountains in eastern El Salvador, and one of the country's most battle-torn zones.

"I say if giving out food is making war, if opening health stations is making war, if bringing electricity and potable water is making war, then you can be sure that we'll keep on making war," he said.

This barrage of goods and services is part of the government's plan called "United to Reconstruct," a campaign designed by the Salvadorans' U.S. advisers. It is intended to sway the sentiments of Salvadoran peasants, whose support for FMLN guerrillas has been crucial to the ability of the Marxist insurgency to operate in the countryside.

"Sure, it's transparent," said one Western official. "The army goes into these towns where guerrilla supporters live. And after they leave, the people are still guerrilla supporters, who now have some candy.

"But, in the long run, it's got to make them stop and think."

El Salvador's eight-year-old war has settled into the long haul. With neither the guerrillas nor the army able to eliminate the other militarily, both sides have escalated their battle over the support of the five million people who inhabit this nation the size of Massachusetts.

But there is a darker side to this competition for the hearts and minds of Salvadorans. At the same time that they are wooing peasants, the guerrillas and armed forces in recent weeks have demonstrated their willingness to deal ferociously with civilians who declare their sympathies for the other side.

On Jan. 19, guerrillas kidnapped a coffee picker and executed six others near the provincial capital of San Vicente, an act that witnesses interpreted as retribution against army informants.

Three days later, seven peasants were killed when the Salvadoran air force bombed near the town of San Diego, near the northern border with Honduras. The military denied that it bombed civilians, but it regards noncombatants who live in the guerrilla zones as little more than rebel collaborators.

"It's like being between two knives," said Roman Antonio Alvarado, 60, whose daughter was killed by guerrillas in San Vicente. "You can't let yourself be seen with either the army or the guerrillas. You have to cover yourself and give nobody reason to suspect."

Such is the state of the war in El Salvador. Strictly military actions have been increasingly overshadowed by tactics - sometimes sophisticated and sometimes brutal - to convince the populace of who its real friends are.

By all accounts, military engagements have subsided in recent years, from the FMLN's peak in 1983, when it seemed on the verge of overthrowing a government that was universally characterized as one of the most repressive in the world.

With the massive firepower and advanced training that they have received through U.S. military aid - worth $702 million since 1979 - government troops have forced the estimated 5,000 to 7,000 FMLN guerrillas to break up into small units. As a consequence, the five groups operating under the FMLN banner have mounted few of the spectacular raids that once characterized their movement.

The last significant guerrilla attack occurred in June, when rebels disguised as soldiers jogged into the Third Brigade headquarters in San Miguel and killed at least 57 soldiers in their barracks. Since then, the FMLN has confined its actions to small ambushes and the increasing use of mines. In a sense, it has been forced to retreat to classic guerrilla tactics.

In recent months, the guerrillas have stepped up the economic sabotage that they say is designed to undermine the government of President Jose Napoleon Duarte.

Already this year, the FMLN has declared two nationwide traffic stoppages, which effectively scared most vehicles off the highways for periods of up to four days. Electrical outages in eastern El Salvador, caused by guerrilla attacks on power lines, are so common they are no longer news.

In the meantime, say religious sources who frequently travel in guerrilla controlled territory, the FMLN has increased its development of political cadres. The guerrillas are instructed to tell peasants that they are fighting "a just war" to end the economic and social inequities caused by capitalism and U.S. imperialism.

The Salvadoran armed forces, now that they have achieved a military stalemate with the FMLN, have increasingly turned their attention to propaganda tactics designed to brand the guerrillas as "subversives" and "terrorists."

Borrowing an FMLN tactic, military officials said they were increasingly using "psychological bombs" against the guerrillas. This involves capturing rebel supporters, changing their way of thinking, and sending them back to their villages to sow doubt among the FMLN's political base.

"We bring them here by helicopter, wash them, feed them and give them some clothes," said a Salvadoran counterinsurgency adviser. "And then we give them a talk."

The peasants are shown films depicting the might of the Salvadoran military. They are also shown videos of rebel atrocities and documents that the military believes demonstrate that the rebels intend to build a Marxist Leninist state rather than a "just society."

"It's the same thing the guerrillas do," said the adviser. "They capture soldiers, treat them well and teach them about their ideology." So far, the Salvadoran military has released more than 200 such "psychological bombs."

The key to the government's counterinsurgency campaign, however, is the "United to Reconstruct" program.

The plan involves steering development projects into the countryside, theoretically to improve the peasants' standard of living and neutralize their support for the guerrillas. Many of the projects are funded by U.S. economic aid.

"The problem we have is a structural problem. It's not a military problem," Vargas, the military commander in Morazon, said last week while directing lines of peasants at the army's event in Chilanga.

"The structural problems are used by the Marxists to foment violence. If you take that away, you take away their appeal."

The "civic actions," in which the army descends on a village and floods it with food and other aid, are part of the strategy. Vargas said a "collateral" benefit of the events is to polish the army's tarnished image as the private enforcer of El Salvador's wealthy elite.

So the army has organized a unit called Section Five, which specializes in entertaining peasants, incorporating a political theme.

"We tell the people the Armed Forces are not now the way they used to be," said Jorge Alberto Contreras, 27, a sergeant who was a military chauffeur until his superiors found out he used to work in a circus. Then he became a clown for Section Five.

"In the countryside, we have to give a message," said Contreras. "The message is for the people with arms, that they can turn themselves in, there is nothing to worry about, that we are for the people."

Because the clown act is often directed at children who support the guerrillas, Contreras said he and his partner never directly ridiculed the rebels. "It has to be subtle," he said.

While the subtle approach has become the rallying cry of commanders such as Vargas, who is a favorite at the U.S. Embassy, Western diplomats say the Salvadoran military remains dominated by officers who adhere to blunter methods of fighting the guerrillas.

Unlike Vargas, who believes that discontent with El Salvador's profound economic inequality is one of the causes of the war, the older generation of officers views the insurgency as the exclusive offspring of international communist expansion.

While officials said the development programs and civic actions had succeeded in increasing the military's profile in the countryside, the actions have failed to sway the allegiance of the peasants. Few of the residents have joined the government's civil defense patrols - mostly out of fear of retribution for openly declaring their sympathies.