CORDOBA, Mexico -- In the lower-middle-class neighborhood of Las Estaciones sits a factory for making pesticides with parathion, among the deadliest nerve agents in the world.

The factory also makes herbicides with paraquat, a chemical so toxic that Finland, Sweden and the Netherlands have banned it. There is no known antidote. Paraquat is particularly harmful to the lungs.

Within 200 yards of the Agricultura Nacional plant are a day-care center, a grade school, a special education school, a public market, two churches, two health clinics and scores of private homes.

Since February, residents had noticed strange smells periodically coming from the 50-year-old structure, which previously had been used as a chemical warehouse. Many people, including the headmistress of the grade school, complained of headaches and nausea.

In March, about 40 residents signed a letter to Mexico's environmental agency asking that the plant be closed. But nothing came of it, even though the agency later acknowledged that the building was licensed only to store chemicals, not to make them.

"It was like writing to Santa Claus," said Juan Molino Velasquez, a truck driver who owns a radio-equipped ambulance that is part of an amateur rescue service.

On May 3, it was Mr. Molino Velasquez who radioed Cordoba's Red Cross headquarters.

The pesticide factory was on fire after a series of small explosions. Within a few minutes, people were vomiting in the streets.

The ensuing panic produced a Dunkirk-style evacuation in which more than 2,000 people were carted off in taxicabs, trucks, buses, private cars and ambulances. The neighborhood was sealed off for two days.

The fire and explosions scattered or burned 4,752 gallons of parathion, 2,112 gallons of paraquat, 792 gallons of the common herbicide 2,4-D and 396 gallons of pentachlorophenol, a wood preservative that contains dioxin, according to a preliminary study by the Mexican Association of Fertilizer and Pest Control Industries.

The study found that about 15 percent of the chemicals escaped from the plant, apparently dispersed by the blaze, explosions or water from fire hoses. The rest were confined to the factory building.

An association spokesman would not confirm the report.

The most deadly of the chemicals was parathion, a substance so dangerous that the Environmental Protection Agency has recommended that it be banned in the United States. A single drop of pure parathion in the eye is fatal, studies show.

Although no one died in the Cordoba disaster, the accident represents to many critics the limits and risks of Mexico's infant environmental protection system.

Indeed, many U.S. ecologists fear that a proposed free-trade agreement with Mexico would permit an influx of U.S. chemical companies seeking to take advantage of Mexico's low wages and limited enforcement of environmental laws.

In 1988, Mexico adopted a strict environmental law. But the environmental agency in this nation of 81 million people has only 210 inspectors -- almost exactly the number in Maryland, which has a population of 5 million.

Nearly half the Mexican inspectors are concentrated in Mexico City or along the U.S. border. For provincial places such as Cordoba, a city of 150,000 about 140 miles east of the capital, the inspections are few and far between.

Among other things, the Cordoba disaster revealed that:

* The pesticide factory was operating illegally in the heart of a residential district. Many residents, and Alfonso Cipres Villareal, the head of a Mexico City environmental group, charge that the owners must have paid off government officials. The charge is heatedly denied by the authorities. Two of the company's principals could not be reached for comment after a week of telephoning.

* The factory's management was permitted to remove files and some of the remaining chemicals in the early-morning hours after the fire.

"They were allowed to take away the incriminating evidence," said Dr. Ernesto Saul Vargas, a dentist who watched from his house across the street. Two plant managers and an employee were later charged with violating an environmental law.

* The federal environmental agency did not respond to residents' complaints before the accident. Federico Sanchez, a local agency representative, later denied that there had been any serious damage.

The Red Cross reported that more than 200 people were poisoned. Some were given atropine, a powerful chemical used to combat nerve agent poisoning.

* Firefighters clearly did not know how to fight the fire.

Rod Turpin, an EPA pesticide expert, said that using water to smother a parathion fire could have produced even deadlier chemicals, such as phosgene, a nerve agent used in gas warfare. The preferred method is to let the fire burn out, since higher temperatures destroy toxicity, he said.

* In hosing down the plant, firefighters sent torrents of pesticide-laden water into the drainage system and subsoil, flooding nearby buildings, such as the Virgin of Guadalupe Church. The neighborhood's three principal wells were temporarily placed off-limits, pending tests. Workmen tried to soak up water residues with lime. * Firefighters and those who helped in the cleanup lacked masks and other protective gear. The EPA requires parathion handlers to wear a respirator and impermeable boots, clothing and gloves. Several firefighters were treated for poisoning, the Red Cross said.

* The fire apparently was started by a short circuit in a machine that heat-seals the bottles of pesticides. Workers had exhausted the fire extinguishers in a similar blaze the night before. They were helpless when the second fire occurred, said the local prosecutor, Carlos R. Gomez Montalvan.

The Las Estaciones accident was no Bhopal, the Indian town where in 1984 more than 3,300 people died and 20,000 were injured in the world's worst chemical factory disaster.

But Dick Kamp, director of the Border Ecology Project in Naco, Ariz., said that "considering Mexico's past performance, I could not rule out asimilar disaster happening there."

In July, a tank containing hydrosulfonic acid ruptured at a Mexicali chemical factory, releasing a highly toxic gas. No one knows how many people were injured. Thousands were evacuated.

Mr. Kamp said the rupture demonstrated how even the most well-intentioned program in Mexico could fail. Mexicali and Calexico, an adjoining California city, are part of a U.S.-Mexico "emergency environmental response" program designed to provide aid in the event of disasters.

"But Mexico did not inform EPA about the incident, even though Calexico was potentially at risk," said Mr. Kamp. "The agency was not informed about it until I told them two days later."

Many Las Estaciones residents favor a free-trade agreement with the United States.

"If it were up to Mexico, nothing would get changed," said Francisco Badillo German, a biologist hired by residents to study the effects of the disaster. "A trade agreement would bring higher American technology and better working conditions."

"Obviously the factory owners are politically well-connected," said Dr. Idefonso Maldonado, whose clinic is a few doors from the plant. "How is it possible for such a factory to exist in a neighborhood like this without the authorities knowing? It is not possible.

"Two months ago, we told the authorities what was happening. Now I have treated kids with skin eruptions and throat problems, all because of this," he said.

Dr. Sergio Estrada Orijuela, the Mexican environmental agency's chief of regulations, said the Cordoba plant had been given preliminary approval in January to start manufacturing pesticides and herbicides, pending an environmental impact statement.

In Dr. Estrada Orijuela's view, the plant would never have been allowed to operate because the impact statement would have revealed its location in a residential neighborhood.

"It would have been completely impermissible under our environmental law," he said.