DRIVE into east Germany today, and the first noticeable change from a year ago is traffic tie-ups. Cars and trucks are funneled into single lanes on many roads, as workers resurface a highway network left untouched since World War II.Not only the autobahns, but the entire region of east Germany - even the unification process itself - can be described as "work in progress." Officially begun a year ago, on Oct. 3, German unification is like one giant construction site. * Economically, the prognosis is for an upturn. The plunge in production of goods and services in the east has bottomed out, after falling about 25 percent this year, and the same in 1990. Meanwhile, the number of east Germans unemployed or working reduced hours has also stabilized at about 32 percent of the work force. * The mental wall separating east and west Germans, however, has yet to be torn down. "Psychologically, we're worse off than a year ago. The east-west contrast has sharpened," says Udo Reiter, a west German who moved east to Leipzig to direct the region's new television and radio concern, Mitteldeutscher Rundfunk. * On the foreign policy front, the Germans have yet to settle on their building plans. Unification hasn't changed their commitment to European unity, but they are having difficulty figuring out to what extent they should be leaders in Europe and to what extent team players. On the whole, says Jochen Thies, editor of Europa Archiv, "German foreign policy is still paralyzed. The process of unification at home is completely absorbing the government." This is not surprising. The transition from a command to a market economy is a monumental task and has already meant the displacement of over half the east German work force. But most economists agree that the east German economy has stopped shrinking. Some essential changes have occurred in the last two years which lead them to voice cautious optimism. First, local administrations are for the most part in control again. As Detlef Ewert, deputy mayor for Frankfurt an der Oder, says: "The economy might not work yet, but at least city hall does!" Second, Bonn is spending 93 billion marks ($55.7 billion) on east Germany, a quarter of the federal budget. This massive aid, along with great improvement on such fronts as property rights, have loosened up funds from the private sector. According to the Association of German Industry in Cologne, west German firms planned to invest 9 billion marks ($5.4 billion) in east Germany this year and nearly double that next year. A poll published last month by the Ifo Institute in Munich states that nearly half the concerns in east Germany expect improved business in the next six months. Construction bookings for the new states were up 96 percent in August compared to a year ago, and the service industry is growing. "The valley has been reached. The question now is, what comes next - an upswing, or a slow recovery? I think a slow recovery," says Heiner Flassbeck, of the German Institute for Economic Research in Berlin. His reasoning is that the industrial sector, the backbone of the communist economy, is farthest from recovery. It is not helped by the fact that wages this year will rise by about 50 percent, without a commensurate increase in productivity. While about 3,400 of east Germany's state-owned concerns have been privatized, about 7,000 still await buyers. Outwardly, things look to be on the upswing here. Scaffolding clutters every street, road crews are out in abundance, and western cars are the norm. But despite the improvements, the mood is not upbeat. People worry about unemployment and rising costs, especially rents, which rose substantially when the government removed some price controls on Oct. 1. Widespread uncertainty has helped fuel the rise of right extremism among youth here. Every week, the press reports new attacks by skinheads and neo-Nazis on foreigners and asylum seekers, many of whom come to Germany simply for economic opportunity. The issue has moved to the top of the agenda in Bonn. Among east and west Germans, meanwhile, the divisions seem deeper than ever. While the economy in the east languishes, west Germany's booms. A major feud has developed between eastern and western politicians in Chancellor Helmut Kohl's party, leading former East German prime minister, Lothar de Maiziere, to drop all his party offices. Battalions of west German bureaucrats, sent east to share their know-how, are often resented as "besser Wessies" (better Westerners). And some west Germans resent the 7.5 percent income tax hike to help finance unification, dubbed a "solidarity" sur charge. With these domestic concerns, it's not surprising that Bonn has not moved out with a bold foreign policy. Whether the Germans like it or not, unification has made them de facto a greater economic and political weight in Europe. Yet for historical reasons, the Germans hesitate to take on a leadership role. In his first speech in Bonn last month, the new United States Ambassador to Germany, Robert Kimmitt, urged Germany to become more engaged on the world scene. But, as a US official admits, Bonn so far has demonstrated leadership only on an "ad hoc" basis. And when it has, such as when Bonn called for recognition of Croatia and Slovenia, it has gotten into trouble with its European partners. For now, Bonn would much rather be a team player in Europe, trying to rally Western aid for the Soviet Union and broaden the European Community to include the newly democratic states of Eastern Europe. But even as it tries to maneuver within the EC, its new size can't help but rub some members the wrong way. "From the perspective of the United Kingdom and France, they have been marginalized," says Mr. Thies of Europa Archiv. "Germany is now in the center."