BOOK REVIEW : Lustrous Tale of Interpreted Dreams, Suppressed Souls : THE PALACE OF DREAMS <i> by Ismail Kadare</i> ; William Morrow; $18, 189 pages.

Each night, from 1,900 provincial offices throughout the empire, the dreams of its subjects are brought to the vast and labyrinthine Tabir Sarrail to be sorted and interpreted. The ultimate in intelligence agencies, it anatomizes the empire’s subconscious for embryonic hints of discontent and disorder. Each week, the most portentously significant of the dreams is sent to the Sultan, to whose security the Sarrail is more important than the Army or the police.

Without Kafka, no doubt, the Albanian poet and novelist Ismail Kadare would never have written “The Palace of Dreams.” We are dealing not with a debt, though, but an inheritance. As an allegory of power, “Palace” is flawless. But into its terse geometry, Kadare has infused a historical and intensely human sadness.

Three overlapping imperial tides--the Ottoman, the Slavic and the Western--have for centuries washed over one tiny and obscure nation. Yet Kadare’s remote Albania flickers continually through the metropolitan capital--a partly mythical Constantinople--where the book is set. Only one candle-power strong, but a single candle that is enough to project the shadows of a universal history of power.

By the turn of the present century, when the novel takes place, the Quprili family had provided the Ottoman Sultans with prime ministers, admirals, governors and treasurers for more than 300 years. They were great and lordly yet they did not really hold power; they were impaled on it. The Ottomans used disposable outsiders to run things for them, thus protecting themselves against rooted cabals. The Quprilis were an Albanian clan and they mounted and tumbled regularly from office to executioner’s block and back up again. After lengthy family counsels and obscure maneuvering, the head of the Quprilis, who precariously serves as the Sultan’s foreign minister, wangles a place in the Sarrail for his young nephew, Mark-Alem. It will, perhaps, gain the family a window into the shadowy bureaucratic behemoth that has so often threatened its interests.

Kadare’s tale, told from Mark-Alem’s point of view, is a portrait of a dark house of mirrors. The young man struggles from mirror to mirror, rising mysteriously from dream-sorter to dream-interpreter and then suddenly, after a brief palace coup and countercoup, to acting director.

Ostensibly, the Sarrail is a pure instrument, a priestly caste that operates in isolation and free of all influences, so as to present to the Sultan an immaculate reflection of his empire and his subjects. In fact, it is a whole hierarchy of corruptions. Some are functional. Mark-Alem sorts blindly through masses of dreams, under pressure to cut down the flow to manageable proportions. When he is promoted to interpreter, he is under pressure to come up with vivid renderings for the Sultan’s weekly master-dream.

Other distortions are political. Local officials forward the dreams of those they favor. The European parts of the empire are favored, dream-wise, over the Asian. Mark-Alem finds himself selecting dreams from Albania. And as Kadare opens the inner passages of his labyrinth, the corruption is revealed more profoundly. The lords of the Sarrail can destroy powerful officials, but powerful officials--such as Mark-Alem’s uncle--can infiltrate the Sarrail. Power is a spider that weaves a web and falls into it.

Mark-Alem, a weary innocent, learns. Kadare uses him as an instrument of discovery, of course. But he makes him a delicate and resonant instrument, one that sounds out much more than a political theme. There is a great darkness in the Quprili line. It goes back three centuries to a bridge builder who, to ensure the durability of his bridge, entombed a man in the masonry and promptly changed his name from Ura--the Albanian form--to a Turkish one.

Ever since, the Quprilis have entombed themselves in their ambitions, choosing to serve the empire and neglect their impoverished mountain homeland. They are fiercely proud of a great literary epic that sings of their medieval warrior heritage. It is even mentioned in the Larousse Encyclopedia; the Sultans are perennially jealous because they have no epic of their own. But it is performed only in Bosnia and in the Serbo-Croatian version, never in Albania, in Albanian. Serving power, the Quprilis have suppressed their souls.

At the end, isolated in his new authority, Mark-Alem recites to himself the Albanian version of his name: Mark Gjorg Ura. He brings up to date the long ledger of family history. About the night of the countercoup that elevated him, he writes, “It must have been snowing . . . There.” He wants to write “Albania,” but can’t. “He gazed at the expression that had substituted itself for the name of his homeland, and suddenly felt oppressed by what he immediately thought of as ‘Quprilian sadness.’ It was a term unknown to any other language in the world though it ought to have been incorporated in them all.”

Power that entraps itself, power that erodes the heart of those who achieve it: Kadare has written lustrously of something far bigger than the story of Albania or the Balkans.