There are many indicators that Napoleon is becoming a dictator. For one, he stirs up the "people," making them unhappy with the present situation. He creates a scapegoat in the "person" of Snowball; he has someone he can blame for everything that goes wrong and someone to focus the people's hatred on (cf. Goldstein in "1984"). He creates a propaganda machine so that the only information the pigs get is the information that he wants them to hear. He takes some young puppies and raises them to be his army, to strike fear into the animals should they ever decide to get together to oppose him. As part of his propaganda machine, he rewrites "history" in the form of the commandments. By the end of the book they have all been changed, but none of the animals can remember the originals, so they all seem to accept the "reality" of what presently is. (again, cf. "1984" when "Who controls the present controls the past; who controls the past controls the future.") He takes advantage of the dedication of the uneducated (Boxer) who trust that whatever he is doing, he must be doing for the good of all.
In many ways, this book is a texbook for creating a dictatorship. If you would like to do some additional research, check this link: http://en.wikipedia.org/wiki/Propaganda.
I would just add to timbrady's comments by saying that Napoleon becomes richer and richer while the other animals become poorer and poorer. Futhermore, the way Napoleon wields his power slowly becomes resolved around fear - fear that Jones will return, fear that Snowball will return, and finally fear of Napoleon himself after the execution of the pigs and hens.
Continuation from post #4
Napoleon takes advantage of the other animals in ways that a dictator would. Napoleon is made to look a lot more harsh than Jones, but what it comes down to in the end, is that Napoleon has turned into exactly what Jones was. He totally disregarded what Old Major had originally stated in the beginning about overrunning the tyranny of Jones and he took it as his opportunity seize control. And although one of the seven commandments was that "All animals are equal", by the end of the book, Napoleon had modified it to "All animals are equal/But some are more equal than others"
In Animal Farm, Napoleon become more and more like a dictator because instead of trying to run the farm and work with the other animals, he gave into his desire for power and ended up running the farm and the animals himself. The animals despised Jones because they felt that while Jones was taking away from the animals, the animals were receiving no gratitude back for their hard labor and all that they supplied. Napoleon obviously showed many traits that would make you assume that his intentions were to establish himself as the new dictator. The misguided way that he treated the animals is a prime example. He stole milk from the cows and gave it to the pigs. He also abducted 9 puppies to train them as his gaurd dogs. His reason for abducting and training these dogs were so that no one could over rule him and so that he would be able to use the dogs to intimidate the other animals for confessions.