BUDAPEST : If Paris is the world’s most beautiful city, Budapest must rank a close second. From Castle Hill the view of the Danube is stunning.

While Budapest burned, Laszlo Rasztoczkomo cranked out still another melody, a modern Nero, a Gypsy violinist.

Although Budapest really wasn’t going up in smoke, Laszlo’s music was igniting the souls of dozens of diners. Just as candles flamed in hundreds of restaurants and coffeehouses, from Gundel’s near Heroes’ Square to an intimate hideaway on Castle Hill. They flamed while a morose Laszlo Rasztoczkomo scratched out a second chorus of the theme from “Dr. Zhivago.”

Lovers sighed. One woman wept openly. Afterward the entire restaurant applauded.

At last the violinist reached for a hanky. Wiping the perspiration from his collar, he settled wearily onto a bar stool.

Laszlo shook his bald head. “Pure sentimental kitsch. Rubbish!”

The old musician confessed that he was on a downer. “This is a city of great music, great composers. I’m a serious musician. I can play anything. But no one appreciates Franz Liszt or Chopin, Haydn, Beethoven. Hah, Beethoven, you know, composed his ‘Moonlight Sonata’ here in Hungary. Instead they ask for the theme from ‘Dr. Zhivago.’ ”

He winces. “It’s either ‘Dr. Zhivago’ or ‘Fascination.’ Especially with the Americans. They relate the violin to ‘Dr. Zhivago’ or ‘Fascination.’ ” He shuddered.

If he played either melody one more time he would smash his violin to bits and turn to waiting tables again, which is what he did before he took up the violin.

Laszlo put down a straight shot of schnapps. After that he excused himself to stroll among the tables, playing once more for the guests.

To be sure, the theme from “Dr. Zhivago” doesn’t exactly stir patriotic fervor in the hearts of Hungarians. What with the story being set in Russia, it’s not everyone’s favorite love song. Even though the Russians liberated Hungary at the end of World War II, the Hungarians can’t forget that they returned to quash their revolution in 1956.

Still, tourists relate Gypsy music to “Dr. Zhivago,” which is how it happens to be No. 1 on the coffeehouse hit parade. And what with more than 5,000 restaurants and coffeehouses in Budapest, it’s next to impossible to avoid a few lines of “Dr. Zhivago,” with “Fascination” thrown in for good measure.

Besides coffeehouses, Budapest is reputed to have more museums per capita than any other city in Eastern Europe. With 25 theaters and concert halls, the arts are dear to the hearts of nearly everyone. The problem is, Budapest draws as many tourists as there are inhabitants, which means fewer museum-goers and more fans of the coffeehouse fiddlers.

Germans, Austrians, Scandinavians, Britishers and Americans. They arrive by the bus load and the plane load, intent on studying Budapest’s castles, guild halls and baroque town houses in addition to the coffeehouses.

Still, as dusk falls, they retire to the myriad restaurants and coffeehouses. Play, Gypsy, play. The music flows from every corner of the city. And with all due respect to the musicians, it is obvious that none were proteges of Yehudi Menuhin.

No, there are few Laszlo Rasztoczkomos, the chubby, balding violinist who has grown to loathe the theme from “Dr. Zhivago.”

On the other hand, not all musicians suffer his displeasure. At the Restaurant Voros Potakocs, which faces the renowned Restaurant Spiros, Josef Sarkozi plays for a crowd composed primarily of Hungarians. He does folk music with the accompaniment of cymbalist Sutan Feller.

They’re a pair. In white dinner jacket with black lapels, the rotund Sarkozi plays with heart, a true Gypsy violinist, eyes clamped shut, soul suffering while sawing away on an old Hungarian love song. Although there wasn’t the stirring mood of “Dr. Zhivago,” there was much applause.

For diners and others who’ve experienced the high cost of Western Europe, Budapest is a bargain. It’s as if the calendar had been turned back 20 years.

At Restaurant Voros Potakocs one would be hard put to drop $10 during an entire evening, drinks included. The menu lists cabbage salad, Hungarian pork stew, grilled pike, pickled gherkins, smoked pork knuckles, ox tongue with horseradish and a sponge cake dripping in chocolate and smothered in cream.

If one is seeking a restaurant with atmosphere, Voros Potakocs is as Hungarian as a kettle of goulash. Vaulted ceilings rise above leaded windows that face amber street lamps. Harnesses grace the walls. Candles glow. The music is lively. And in the 200-year-old cellar, drinks are served from an ancient horse carriage.

Hollywood would be hard put to top it for pizazz.

While it is difficult to go for broke in Budapest, one restaurant, the Vadrosa, draws big spenders. The Vadrosa (Wild Rose) occupies an ancient villa where a couple of Gabor-type sisters provide both charm and memorable meals. Chandeliers shine on oak-paneled walls, and lace curtains flutter at the windows.

If one is weary of Gypsy violinists, the Vadrosa employs a pianist instead. The trouble is, American guests, remembering Rick’s in “Casablanca” (which obviously has nothing whatsoever to do with Budapest) request that familiar theme, “As Time Goes By.” Over and over again.

At any rate, the Vadrosa is an epicurean temple, serving up goose liver, Russian caviar, venison done in wine, pheasant, wild boar, fish from Lake Balaton, apple and cherry strudel and an outrageous dessert consisting of chocolate pancakes with ice cream and dollops of whipped cream. Figure on $80 to $100 for two. That’s with wine and at least a dozen renditions of “As Time Goes By.”

In another old villa restaurant, the Paradiso, the guests of proprietor Janos Vermes are met at the door by a butler in tails and a couple of stunning creatures costumed like bunnies in a Playboy Club.

Like Restaurant Vadrosa, the pianist at the Paradiso knocks out a few bars of “As Time Goes By” along with the theme from “Love Story” and other popular flicks. The Paradiso does trout filled with almond and caviar sauce, stuffed mushrooms with goose liver, caviar pancakes with white onion sauce and a crayfish cream soup with cognac. The list goes on.

It is nearly impossible while sightseeing in Budapest--even on Castle Hill--not to be steered to yet another coffeehouse. But there is relief from “Dr. Zhivago” at the Korona coffeehouse, where Gypsy music is out and classical music is in. This along with poetry readings. All the while customers stuff their faces with rich cakes, tortes, ice cream and other cholesterol-producing sweets.

Other crowds gather around ice cream vendors on Castle Hill near storied Matthias Church and the statue of Stephen I, who got things rolling in Budapest nearly 1,000 years ago. The same neighborhood is home to the excellent five-star Hilton Hotel, which is built around the ruins of a 13th-Century Dominican monastery.

Incongruously, the Hilton is also the home of Hungary’s first gambling casino. Not one of those Las Vegas dens with the smoke and the crowds dressed in jeans. Instead, it’s downright genteel, with the same dignity displayed at Monte Carlo. None of this is far from the Royal Palace and the turn-of-the-century Fisherman’s Bastion.

If Paris is the world’s most beautiful city, Budapest must rank a close second. From Castle Hill the view of the Danube is stirring. What with the city and the Parliament buildings rising on the opposite bank, the night sparkles. Still, nothing is sacred. Not even in old Budapest, where a McDonald’s opened recently to crowds that stand patiently in long lines for a Big Mac. Imagine a hamburger frenzy in the land of foie gras , Hungarian goulash, escargot soup, cabbage salad and fisherman’s stew.

Facing the Hilton on the opposite shore of the Danube (across the lighted Chain Bridge), the Forum Hotel gets raves for its service. The staff rates five stars (*****) at the very least, and its coffeehouse is regarded as the best in Budapest.

In addition, the hotel’s splendid Silhoutte restaurant is impossible to fault, what with a menu that goes for pages: smoked fish with horseradish cream, quail eggs with caviar, wild boar soup with dill, escargots au gratin with mushrooms, catfish stew with cottage-cheese paste, goose soup with motza dumplings, venison in red wine with chestnuts, rabbit with green noodles, Hungarian stew with gnocchi, pheasant, wild duck with mushrooms and wild boar with garlic.

Close by the Forum, Budapest’s famous coffeehouse, Gerbeaud, operates much as it has since 1858. Except that the buildings are topped by the Soviet red star, Budapest seems as capitalistic as Manhattan. Once, nearly a century ago, it was among the gayest of European capitals. Even then Gypsies fiddled while old Budapest played. Now Pierre Cardin has unveiled a store on the main shopping street, the Va’ci utca, which for a communist country is like a trip down Rodeo Drive.

More than once Budapest has risen from ashes, having been laid waste by a succession of invaders: Mongols, Turks and, during World War II, both the Germans and the Allies.

In the interim Budapest became a spa center. The Romans built the baths. So did the Turks. As a result, one can still get boiled in Budapest. Particularly at the Thermal Hotel and the 126-year-old Grand Hotel on Margaret Island, which rises smack in the middle of the Danube.

Strictly Old World, the Grand features hissing espresso machines, marble columns, oak-paneled walls and antique chandeliers. At one spa, chess sets float in the pools. Other visitors plunge in at the venerable Gellert Hotel on the Danube where, afterward, guests take their fill of sweets on the Gellert’s terraces.

The dining room at the Gellert is turn-of-the-century decadence: waiters in tails, coffee in demitasse cups, cut crystal, red roses and candles. Yes, and desserts flamed at one’s table to the tune of--what else?--Gypsy violinists.

After eyeballing the Hungarian National Museum, the Royal Palace, the resplendent Opera House and taking in a performance of the Budapest Gypsy Orchestra (100 violins!), visitors steer a course for the summer playground of Lake Balaton and the enchanting village of Szentendre.

A dozen miles from Budapest, Szentendre--with its twisting, cobbled streets--is old, old Hungary, a 17th-Century relic that attracts artists, antique buffs and shoppers searching for ceramics.

John Van Dam of the Netherlands ushers visitors through Arteria Galeria with its display of paintings, while Felicity Wenczaller, a dark-eyed beauty from India, presides over Piroska, a shop specializing in ceramics and high-fashion women’s wear and whose most celebrated customer was Nancy Reagan. Among the village’s many museums is one dedicated to the celebrated ceramic artist, Margit Kovacs.

Appetites are satisfied at Rab Ra’by Vende’glo (considered the village’s best restaurant) and the lively little Vidam Szerzetesek with its timbered walls, amber lamps and fresh flowers and a menu that tells of liver dumpling soup, pork cutlets, pickled paprika, dumplings with veal and Hungarian red pepper, roast suckling pig and tripe goulash.

After this, diners exit down the block to Nostalga, the name given to a snug little coffeehouse with a vaulted ceiling and marble-top tables. It’s a shelter that drips with the sort of atmosphere that brings to mind Marlene Dietrich belting out one of her old torch songs.

No Gypsy music, no “Dr. Zhivago.” Just the haunting lyrics of “Lili Marlene.”

Details on Hungary are available from the Hungarian Travel Co., 1 Parker Plaza, Room 1104, Ft. Lee, N.J. 07024. (For restaurants named in this article, contact your concierge or hotel receptionist for directions.)