Demonstrations against Burma's inept military dictatorship are likely to spread and the only person who might have a settling effect is in jail, according to diplomatic observers here.

But the resignation Friday of former Gen. Sein Lwin after only 17 days in power may bring a lull in the demonstrations of the past several weeks that have cost an estimated 200 lives, analysts say.

State Department spokesman Charles Redman said the department could not predict the impact of Sein Lwin's resignation but added, "We hope the violence will stop."

Asked what the United States would like to see in Burma, Redman replied, "I don't believe it's for me to pronounce on what is something for the Burmese people to decide."

Sein Lwin, a former hard-line armed forces commander, was a target of demonstrators' anger because he directed the government's bloody attempts to quell the riots. Sein Lwin, 64, had replaced Gen. Ne Win, 77, strong man for 26 years, on July 27.

Student-led demonstrations in Rangoon and a dozen other cities may calm down until the meeting next Friday of the central committee of the military-run Burmese Socialist Program Party, the nation's only permitted party, an analyst here said.

But that meeting and an announced session of the puppet National Assembly the same day are not expected to satisfy the demonstrators' demands for relief from poverty and for a multiparty political system, diplomatic observers predict. "The regime may make some reformist noises and take some reformist steps, but it does not appear to have the courage and imagination to move toward ending the intolerable conditions," said one observer.

The observer said former Brig. Gen. Aung Gyi is "the only person who might have a settling effect" on the people. A longtime colleague of Ne Win, 70-year-old Aung Gyi, wrote a series of letters to Ne Win earlier this year calling for changes in the country's rigid, state-controlled socialist system and for changes in the leadership.

When Aung Gyi publicized his criticisms, he was jailed.

The student demonstrators' slogans are mild in the eyes of diplomatic observers. Having picked up wide support from workers in the past three weeks, the demonstrators' primary demands are: an end to martial law, a halt to shootings of civilians by soldiers and police, and a cut in the rocketing cost of food and other basic requirements of daily life.

Some students have gone further by demanding an end to Burma's one-party system. As he resigned, Ne Win proposed a referendum on changing to a multiparty system, but his party rejected the suggestion.

The State Department's muted voice on events in Burma contrasts with its strong denunciation of the Rangoon government in its 1987 human rights report. "Burma has an authoritarian, one-party system in which leaders are drawn for the most part from a small elite within the military officer corps," the report says.