THE REAGAN ADMINISTRATION is right to take Nicaragua as a serious menace -- to civil peace and democracy in Nicaragua and to the stability and security of the region. Some of its rhetoric is easily mocked, but the administration understands things much better than those who paint the Sandinistas as poor put-upon patriots of a mischievous but unthreatening leftist persuasion. There is no good reason to doubt the Sandinistas are revolutionary communists who would if they could make their country a second Cuba: a police state and an outpost of Soviet power. To defeat Somoza, they lied to the hemisphere that they were pluralists and democrats. To get aid from Jimmy Carter, they told more lies of their peaceful intent. They are squeezing the remaining pluralistic forces, and their subversive capability is evident.

The question is, what should be done about it? More precisely, since this is the seventh year of the revolution and the fifth year of the counter-insurgency and many political facts already exist on the ground, what can be done about it? For -- here is where judgment must temper ardor -- all possibilities are not equally open.

The first requirement is a general explicit agreement among Americans to draw certain geopolitical lines: no Soviet bases, no weapons of regional intimidation. The United States needs to make sure the Kremlin knows where these lines are. The United States needs to pledge to itself it will counter the inevitable Soviet probes.

Then the United States needs to do what is necessary to block and defeat efforts by Nicaragua, with or without its Cuban and Soviet patrons, to subvert other Central American countries. Naturally this can only be done with the consent and cooperation of the countries affected. The whole argument over the contras illustrates, by the way, the foolishness of imagining that El Salvador's large guerrilla force could stay in the field for two weeks without Nicaraguan support.

What about the contras? They have become an instrument to topple the Sandinistas or -- a nearly equivalent goal -- to deny them a monopoly of power. But they are an imperfect instrument. The credentials and field performance of the effective military leadership do not fit the democratic and humane purposes avowed by the political leadership. Their American sponsorship lets the Sandinistas depict them as inheritors of earlier Yankee interventions. Their American sponsorship also denies them the necessary warm support of almost all other Latin countries, whose fear of communist subversion is offset by a reluctance to endorse what they see as American armed intervention.

But, as the administration says, would not these difficulties dissolve if the United States ended its hesitancy on the contras and provided them the resources and American policy constancy they need to prevail? The record suggests that the Sandinistas would stiffen, close out the lingering traces of domestic pluralism and seek additional support. Other Latins, fearing the whirlpool, would distance themselves further from Washington.

The other Latins include Nicaragua's near neighbors and the South American democracies. They have found it next to impossible to gain political concessions from the Sandinista regime while it faced what it has regarded as a threat to its very existence. While Managua sees the issue as survival, no real concessions are likely, and even then they would be hard in coming. In this sense, the administration's insistence that the Sandinistas are irredeemable becomes, as does its critics' insistence that the contras cannot win, a self-fulfilling prophecy.

We believe, nonetheless, that serious negotiation offers a route to the loosening that internal reconciliation and regional stabilization require. It counts that Nicaragua is not Cuba: not an island, necessarily more open to its neighbors, harder for Moscow (or Havana) to protect and sustain. It counts that inside as well as outside Nicaragua there remain important elements devoted to the best interests of their country. It counts that Latin America is caught up in a historic sweep toward democracy and that the Latin democracies are available to tug and haul on the parties, to assist in the back and forth, to draw away some of the Sandinistas' paralyzing paranoia and to put the administration's effort in a larger multinational context.

"Serious negotiation." The goals -- the feasible goals -- are clear enough on the democratic side: first the scaling down of limits on civil liberties, press, private enterprise and church, the opening of next year's municipal elections to all parties, plus credible evidence of reduced Sandinista support for El Salvador's guerrillas; then a turn toward national power-sharing. What could the Sandinistas reasonably expect in return? A guerrilla cease-fire, postponement at least of American aid to rebel forces, a start on diminishing the American regional military presence, an end to economic sanctions; and, if things went along, American renunciation of an intent to drive the Sandinistas from Nicaragua.

The Sandinistas have taken Nicaragua a long way toward the Soviet-Cuban orbit. An attempt to fit Nicaragua back into a Central American mode would be disorderly, incomplete and frustrating -- but a vast improvement on what otherwise looms.