On the grounds of the church in the center of town, a priest has had dug what is called ''the refuge'' - a trench that could protect perhaps six people in a rebel attack.
''For the past year it's been a war situation here,'' says the priest, the Rev. Lyle Alfred Gundrum, who moved here from Wisconsin.
In this town 15 miles from the Honduran border, in the region where Nicaraguan hero Augusto Cesar Sandino fought his country's rulers and opposed United States Marine intervention 50 years ago, another generation of Sandinistas has taken up arms.
The strategy of the Sandinista government has been to supply weapons and training to a substantial portion of its population of 2.5 million people. In Sandino City volunteers, including boys as young as 12 and women in skirts and high heels, walk along with Soviet AK-47 rifles. Armed soldiers guard the hills that ring the town and go out on daily patrol. Peasants traveling to work their fields often take rifles.
Though attacks have been reported in Matagalpa, just 100 miles from Managua, outside observers confirm that the hardest fighting in the war to oust the Sandinistas has been concentrated here in Nueva Segovia Province. Since last summer, an estimated 8,000 US-backed contras have been striking in the region. Other contra groups have opened fronts in the eastern province of Zelaya (involving about 1,500 men) and in the southern zone of Rio San Juan (about 1, 500 men).
Since Jan. 1 contra attacks have killed 600 Sandinistas and, in northern Nicaragua alone, have caused more than $50 million of damage, sources say.
Just last month 76 Sandinista soldiers were reported to have been killed, including 28 volunteers. Twenty-two civilians were reported killed. The contras lost 197 fighters, according to Sandinista figures.
So far the Sandinistas say the war is not a serious threat to the government.
A Western military analyst in Managua agrees: ''Militarily speaking, the contras are not in the driver's seat,'' he says. ''The Sandinista Army is not worried about it too much.''
But Defense Minister Humberto Ortega Saavedra says that in recent weeks more contras have crossed into Nicaragua from bases in Honduras, suggesting the war may intensify.
The Sandinistas have an estimated 50,000 volunteers serving in militia and reserve units. The Army is said to have 20,000 to 25,000 men. In addition, the Sandinistas plan to require two years of military service of all Nicaraguan men between the ages of 18 and 40. In the first phase of the draft, which is scheduled to begin Oct. 1, the Sandinistas plan to register 200,000 and induct 15,000. Some observers view this as a reaction to a contra threat, but a military analyst says the Sandinistas have planned a draft for some time.
During the Sandinista war against the Somoza regime, which culminated in the overthrow of that government in 1979, there was little fighting in the north. Battles were mainly in cities and in the south. The Sandinistas used the northern mountains mostly as training bases. In Sandino City itself, there was one brief battle during the revolution.
But in the past year a wave of assassinations and attacks has hit this town. Between May and October, five Christian leaders were killed in their homes, Fr. Gundrum says.
The contras have chosen community leaders as their targets, said Lt. Ulyses Sanchez, Sandino City's police chief.
Mr. Sanchez says Sandino City's population has swollen to 5,000 from 3,880 as peasants have sought refuge from the rebels in the past few years.
The town has been attacked twice in the past five months. The last assault began at dawn Aug. 24 when 200 contras fired four mortars. The contras got to within two blocks of the central square, but Mr. Sanchez says the citizenry defended itself with the help of dozens of local police and militia and 120 members of a battalion of reserves. The citizenry had been practicing for an attack, Sanchez says. Thirty citizens would collect arms from storage facilities and to meet the enemy in the foothills outside the town. If need be, Sanchez says he can arm 1,000 people against the contras.
During the Aug. 24 attack, women stood on streetcorners shouting encouragement, and revolutionary music was piped out the town's only cinema, he says. Sanchez said 21 contras and two Sandinistas were killed in fighting.
In El Salvador, Army officers have been criticized for conducting a 9-to-5 war. But here, Sandinista volunteers maintain a guard all night. Six left on patrol the night after the battle, 11 marched on a five-hour patrol the next day.
Though the war has had serious consequences for Sandinista efforts to rebuild the economy, some political observers suggest it also offers some advantages.
But by appealing to Nicaraguan nationalism against invaders from the north, the Sandinistas have been able to switch attention away from the poor economy and from disgruntlement at Marxist policies taking shape. They have swept into their camp peasants and townspeople who otherwise might not rally to support the government.
In the isolated communities of the north, the contras may have helped forge a new Nicaraguan unity. Sandinistas say that once again US imperialism, the same enemy Sandino fought, is threatening national sovereignty. ''It's the same enemy as before,'' a reservist said.