"Christmas was on its way, lovely, glorious, beautiful Christmas, around which the entire kid year revolved."

That was how humorist Jean Shepherd summed up the holiday season in the 1983 film "A Christmas Story," the tale of a little boy's quest for the Christmas present of his dreams, an air rifle.And so it is for millions of children - Christmas is the high point of their year. But this Christmas is a difficult one for many of their parents, who are concerned about the economy and the Middle East and have less money to spend on toys.

Consumers are in a quandary, caught between financial restraints and wanting to fulfill their children's Christmas wishes.

Toy retailers and manufacturers already have felt the pinch. Toys R Us Inc., the nation's biggest toy retailer, suffered a slump in sales after the Iraqi invasion of Kuwait in August that mirrored the drop-off in business throughout the retail industry.

Robert Nakasone, a Toys R Us vice chairman, acknowledged that these are uncertain times, but he expected a merry Christmas nonetheless.

"People may cut back for durables . . . but when it comes down to your kid at Christmas, it's pretty hard to say no to them," he said.

Even in relatively poor economic years, he said, Toys R Us has had some of its best holiday seasons. In 1982, in the midst of the country's most recent recession, toy sales for the entire industry rose 13 percent.

But some industry analysts were not as sanguine. Daniel Barry, of Kidder Peabody & Co., said toy sales could slip along with other merchandise sales this season.

Retailers and manufacturers are concerned because even one less toy under a Christmas tree, when multiplied by the more than 60 million children age 16 and under in the country, can make for a poor season.

Perhaps the most sensitive area is video games, which again are on many wish lists this Christmas.

Retailers and video game manufacturers face several unknowns. Given the uncertain business environment, no one is sure how many parents are willing to invest big on Nintendo and other more expensive video systems.

The biggest question is whether the new systems, which offer more advanced technology and more sophisticated graphics and sound effects than Nintendo, can take market share from the industry leader.

Children who have tired of Nin-tendo games - or whose Nintendo systems have worn out - are asking for the new units, known as 16-bit systems. A bit is the smallest unit of information in a computer, and 16-bit systems can process more information and instructions than eight-bit systems like Nintendo.

The 16-bit systems, which include NEC Corp.'s TurboGrafx-16 and Se-ga's Genesis, must overcome a big obstacle - their price.

The basic Genesis unit has a list price of $189.95, while the basic Tur-boGrafx-16 goes for $159. Those prices don't include game cartridges, which can run $50 or more apiece.

In comparison, Nintendo looks like a bargain. Its basic unit can be found for under $100 in many stores, and many of its cartridges sell at a discount because there is a glut of them on the market.

Nintendo's hand-held model, Game Boy, also has a price edge over its new competitor, NEC's TurboEx-press. Game Boy has a list price of $100 while TurboExpress lists for $249.

It all comes down to how much parents want to indulge their children and how much they can and want to spend.

Manufacturers say they already are feeling the effects of a cautious consumer.

"In a normal year, retailers in October would purchase enough to take them all the way through Christmas," said Ken Wirt, NEC's vice president for home entertainment.

"The turmoil in the retail industry has definitely had an impact on the toy industry," he said.

But some traditional toys are expected to be sure winners this season, analysts say.

Children's love affair with Teenage Mutant Ninja Turtles is continuing, so the Playmates Toys Inc. action figures and their spinoffs, which include videos, books, clothes, watches and games, should do well.

The Simpsons are expected to be found in varying forms under plenty of Christmas trees. Manufacturers have licenses from the producers of the popular television series for a range of merchandise including dolls and plastic figures.

Dolls based on the rock group New Kids on the Block have been selling well ever since their introduction earlier this year by Hasbro Inc., and they're expected to be a hit again at Christmas.

Barbie, Mattel Inc.'s long-reigning queen of toys, continues to dominate the doll business, with new outfits, a swimming pool and her own Corvette among the offerings.

Meanwhile, there's been an explosion of baby and toddler dolls as that segment continues to thrive. A parent shopping in a well-stocked toy department or store may have dozens of dolls to choose from, with most ranging from $20 to about $60.

There are dolls that drink, wet their diapers, fall down, cry, shiver or take baths, and dolls that can be dressed up, made-up or have their hair dyed.