The labor leaders were bitter after their loss. Bill Morris, head of the gigantic Transport and General Workers Union with more than one million members, said there had been a continuing rolling back -- turning out militant leaders in the 80's, abandoning unilateral disarmament and now curbing the unions' influence.

"What will be next?" he asked. "They won't be satisfied until our members have no rights and our policies have no substance." Clinton Is Their Inspiration

The tug-of-war in the Labor Party is often characterized as a struggle between "the modernizers" and "the traditionalists." The "mods" are a group of young Turks, articulate and versed in new campaign techniques, who believe that the party must move into the mainstream to have any hope of winning. They were deeply influenced by Bill Clinton's election as President.

A leader of the modernizers is Tony Blair, the shadow Home Secretary, a 40-year-old Member of Parliament from Sedgefield in Durham. He has fine chiseled features and wavy black hair. Two nights ago he addressed a crowd of several hundred in a hotel ballroom and expounded on his political philosophy.

He said he wanted to "make the party radical but in a way that people can relate to it," and he cited as an example the need to make a campaign issue out of rising crime. "We need to appeal to the world in which people might live -- not the world they lived in 30, 40 years ago," he declared.

A few blocks away, in another hotel room, convened a meeting of unreconstructed traditionalists, who believe that the party must return to its mandate to raise the flag and shield of socialism. In the crowd were women with close-cropped hair, youths in beards and leather jackets, elderly men with wavy white hair and thick accents.

Their meeting rocked with the old-time religion, but it also had the air of a wake, since it bemoaned the fact that Tony Benn, the 68-year-old apostle of socialism, a famed orator and former Cabinet minister and a man who renounced a peerage to serve the cause of the workers, had just been booted off the party's national executive committee after 34 years. More than anything else, that act signified the passing of the old, radical guard. 'The Marshmallow Left'