Malaysia, already friendly with Arabs, warms up to Japan and Indonesia

Under Prime Minister Mahathir Mohamad, Malaysia is quickly projecting a more vigorous image as a nationalistic, Islamic developing nation.

Malaysia, it is stressed, will stand firmly in dealings with the industrialized world. The country has also raised its profile as a Southeast Asian nation.

At home the Prime Minister has been both firm and tactically flexible in preventing any political challenge that could rock the nation's delicate communal balance between Malays, Chinese, and Indians.

Since taking power in July 1981, Dr. Mahathir has more openly identified his government with the Islamic faith, especially by stressing constantly his nation's links with the Middle East. He has striven to meet the challenge of Islamic fundamentalists by insisting he will control modernization in Malaysia to prevent destruction of the traditions of family and religion. But he has resisted Islamic fundamentalist demands for religous dominance over Malaysian laws. Dr. Mahathir's challenge is to keep Islamic support without giving away so much that Malaysia's Chinese minority (some 35 percent) would grow restive.

One way the government asserts its third-world identity is by criticizing Western press domination over both the flow of news in and out of Malaysia. Another third-world initiative is Malaysia's bid for tin producers like Indonesia, and Thailand to join Malaysia in a tin price cartel. The purpose: to combat depressing of tin prices by what Malaysia views as US ''dumping'' of tin reserves onto the world market.

Malaysia has continued to stress its Asian identity as well. Dr. Mahathir's forthcoming visit to Japan, where he is to meet with Prime Minister Nakasone and Emperor Hirohito, symbolize warming ties with Japan. Prime Minister Nakasone's direct-line telephone call to Dr. Mahathir shortly after the new Japanese prime minister took office symbolizes the warmth of Malaysia's relations with Japan.

In Southeast Asia, Dr. Mahathir has also warmed relations with Islamic Indonesia, stepping up joint military planning. This is in stark contrast to the confrontation between the two countries in the early 1960s. Relations between Malaysia and Singapore have also strengthened. Dr. Mahathir and Singapore Prime Minister Lee Kuan Yew are sometimes described as sharing a similar penchant for active, sometimes stern leadership; and modernization that preserves traditional values, as well as stern measures against corruption.

Malaysia has become increasingly vocal on the Kampuchean (Cambodian) issue, openly urging support for the anti-Vietnamese guerrilla front in western Kampuchea. But Dr. Mahathir has denied Malaysia favors military aid.

A crucial test for Dr. Mahathir is whether he can contain the grievances among Malays, Chinese, and Indians which led to brutal riots by Malays against Chinese in Kuala Lumpur in 1969. The central strand of this, and previous governments, has been the ''bumiputra'' (Malay for ''sons of the soil'') policy. Thus the often more backward and rural Malays are to receive some 30 percent of the country's corporate wealth (the current figure is a little over 12 percent) by 1990. In theory this will reduce the Malay grievances toward Chinese by using hiring quotas, among other steps to improve their education, skills, and standard of living. But the policy has alienated some Chinese and ethnic Indians.

Prime Minister Mahathir has warned that a constant danger of communal disintegration in Malaysia requires a limitation of civil liberties. One method of restraint is the Societies Act, which regulates the country's 14,000 registered societies, including some that are critics of government. Dr. Mahathir hints he will revise tougher 1981 amendments. But he also indicates he will keep major parts of these changes. Critics warn parts of these amendments which reclassify ''pressure groups'' into ''political groups,'' will give the government added power to crack down on organized dissent.

Legislation before parliament calls for a prison term of up to three years for anyone convicted of ''passing judgment on another religion'' or using words and conduct to cause ill will and disunity. These measures could be used against Malay, Chinese, or Indian militants.

The more fundamentalist opposition Party Islam, realized few of its goals in the April general elections. The Chinese side of the opposition, the Democratic Action Party, dropped to six from the 16 seats it won in 1978 elections.

Dr. Mahathir has confronted internal and external criticism by retaining the 1960 Internal Security Act (ISA). This allows indefinite detention of prisoners without trial. The government insists this power is necessary to prevent a revival of the ethnic Chinese guerrilla movement that was crushed in the 1950s.

Yet Dr. Mahathir has cautiously loosened the reins.

Large numbers of political prisoners have been released since 1968, including 168 released since July 1981. Even so, Amnesty International, the London-based human-rights organization, has expressed concern over official reports that some 400 ISA prisoners are still interned.