THERE is no better sign that Switzerland is considering shedding its cloak of isolation than that the Swiss Army knife now comes with the stars of the European Union emblazoned on a royal-blue background. But many observers say the Rhone Glacier - the Swiss landmark that formed the area around Geneva - may recede into the Alps before this country integrates itself into the EU. The question whether Switzerland should join the EU is again boiling to the surface as October's parliamentary elections draw near. The ruling Federal Council faces a icy gap over the issue between Swiss Germans and Swiss French. ''In the long run, given the strong cultural bond with Europe, EU membership has to be a strategic objective of Switzerland,'' said Nicolas Lange, a spokesman for the Federal Council in the capital of Bern. ''Of course, this is not easily achieved given the deep division of the country.'' This isn't the first time the Swiss have debated whether to join all or part of the EU. Three years ago, when the 704-year-old country voted on joining a looser, larger grouping known as the European Economic Area, all six French-speaking cantons voted in favor, while most German- and Italian-speaking cantons defeated the proposal. Although a vote on EU membership is not scheduled, the issue dominates the scene as the EU nations integrate. The divisions among the Swiss are most clear near the Sarine River, which splits the German-speaking region from the French-speaking region. Locals have nicknamed the area the Rosti Gap, after a potato dish particular to the Swiss German cantons. During the 1992 vote, the Swiss Germans threatened the Swiss French, who never eat rosti, that they could look for new country borders should the vote go against their liking. ''All those little cantons in the center of the country don't want to join the EU,'' says Jeanine Shaerer, a French-speaking resident from Lausanne. ''The people in the center just want to stay behind their mountains and not let anyone else in or out.'' But it is no surprise that most Swiss balk at following the rest of Europe. Switzerland has steered clear of Europe's wars for centuries and doesn't belong to the United Nations. Some see isolationism as a national raison d'etre. ''For the moment, we don't want to go into the European Union. We say 'no' to an entrance immediately,'' says Myrtha Welte, a Swiss German and general secretary for the Swiss People's Party. ''We may be the party that's the most traditional, but we don't want to lose our sovereignty.'' But Andre Daguet, general secretary of the Social Democratic Party, has different ideas. ''Many of our decisions must be made in mind with what the other EU countries are doing,'' Mr. Daguet says. ''So it's not true that we're entirely free. We would be stronger if we are a part of the union because then we could influence decisions rather than just follow them.'' The country will lose economically if it doesn't join the EU, Mr. Daguet says. For example, for textiles to keep the right to carry a special European mark of origin, two of three manufacturing stages must take place in an EU country. Without this mark of origin, the imports to EU nations are subject to high customs duties. This is a disaster for Swiss spinning and weaving companies that supply other European firms. As a result, since Austria joined the EU, its province Vorarlberg on the Swiss border has become a magnet for Swiss textile companies. In addition, without EU membership, the Swiss are prevented from freely seeking employment throughout western Europe. That's a problem in a nation that has never known significant unemployment until now. In July, Switzerland's unemployment rate was 4 percent, down from an earlier rate of 4.5 percent but still high by Swiss standards. Those who want to join the EU argue that Switzerland will weaken if it remains isolated. ''Other countries are evolving, but not Switzerland,'' says Laratta Nicola, a gas station owner in Lausanne. ''It's difficult here because of the different regions. They don't all want to move ahead. But if we don't, then we'll be squeezed.''