September 24, 1981

INTERNATIONAL Israeli archeologist defends City of David dig A2 Senate backs move to link Salva- dor aid to rights progress A3 Egypt, Israel and U.S. resume talks on Palestinian self-rule A3 Ailing Finnis h President might quit A4 Around the Wo rld A7 Wave of viole nce troubling Thai- land A11 Exile of lawy er is linked to end of Letelier ca se A12 Bolivian chan ges linked to U.S. displeasure A13 2 U.S. milita ry advisers are shot in Honduras A14 GOVERNMENT/POLITICS Virginia gubernatorial candi- dates campaign unusually hard A23 Michigan Democrats see hope in new gubernatorial candidate A24 Planners see transit "Dunkirk" in plan to cut cities' aid B12 WASHINGTON TALK Briefing B10 Required reading B10 F.B.I. has a new TV show and a refurbished reputation B10 GENERAL Around the Nation A16 Navy ready to build disputed hos- pital in San Diego A16 Officer accused of selling secrets to Russians goes on trial A18 Army Secretary reassures Jersey on Fort Dix B2 HEALTH/SCIENCE Fuel spill may bring monthlong delay for shuttle flight A20 BITUARIES Chief Dan George, who appeared in film "Little Big Man" D27 Dr. James E. McCormack, direc- tor of Academy of Medicine D27 HOME SECTION Home In Milan, the bizarre becomes respectable C1 On the flea market prowl C1 Problems in dyeing a carpet C5 Tree-collecting season starts C1 Hers C2 Helpful Hardware C2 Home Beat C3 At crafts galleries, pottery to paper C3 Home Improvement C4 Calendar of Events C7 An Irish mix of fashion and furnishings C8 Gardening C12 ARTS/ENTERTAINMENT "September Wheat," A documentary, at the Film Forum C13 Neil Greenberg dances C14 Met Opera Sings "Rheingold" C15 Bernstein conducts finale in Haydn-Stravinsky series C17 Philharmonic keeps stiff lip as Danny Kaye conducts C19 Looking ahead toward a season of sports-theater C19 Elizabeth Taylor to get third Filmex award in Hollywood C20 "Louis," a musical, opens C21 Endangered New Jersey Symphony returns to life C24 Manhattan Transfer at Radio City C25 "Badgers" by Donald Wollner at the Manhattan Punch Line C25 Book dealing with U.S. "War" on Castro is reviewed C25 Revolutionary Ensemble reunites for Public Theater concert C26 Filming of movie turns clock back to the 50's C26 ABC and Getty Oil plan pay-cable sports TV service C28 SPORTS Jackson fights with Cleveland pitcher aft er brushback B13 Mets lose to Cubs, 2-1 B13 Brooks seeks a No. 1 in goalie standings B13 Expos and A's regain division leads B14 Dave Anderson on the truths of a split seaso n B14 Steinbrenner is critical of Cerone B14 Horsemen prot est proposed changes in pre-race drug tests B16 N.C.A.A. canc els December vote on televisi on dispute B16 NEWS ANALYSIS Charles Mohr examines a key issue in debate on Awacs sale A3 Kenneth A Briggs writes on issues raised in seminary study A21 Adam Clymer discusses Democratic plans to revitalize party A25 Clyde Haberman analyzes Koch's twin nomination B6 Hedrick Smith analyses new mood of resistance to Reagan B10 EDITORIALS/LETTERS/OP-ED Editorials A26 Who will pay? What's primary now Heat, light and oil Topics: siren songs Letters A26 Anthony Lewis: time for the P.L.O. to act A27 William Safire: "can-do" at Cancun A27 Jacek Kalabinski: extremism in Poland A27 Roger Fisher: on negotiationg - the U.S. and Soviet A27

The LTV Corporation of Dallas made a surprise takeover bid yesterday for the Grumman Corporation, Long Island's biggest employer. LTV offered to pay $450 million in cash for a 70 percent interest in the company, the nation's fourth-largest military aircraft manufacturer. Wall Street analysts generally welcomed the proposal as a ''good fit,'' saying it would strengthen Grumman's standing as one of the country's 10 top defense contractors and enhance its ability to compete for military orders. Grumman is already the nation's No.1 contractor to the Navy. But because LTV, through its Vought Corporation, is also a major military plane maker, the bid was likely to pose both military and antitrust questions and to lead to opposition from Grumman itself.

The Reagan Administration appeared ready to delay indefinitely the issue of decontrolling natural gas prices. Officials were said to have decided that Congress was too preoccupied with budget matters to take up gas decontrol now. (Page D1.) President Reagan conferred with budget officials and worked on his television speech for tonight. He was said to be leaning against committing himself to the detailed list of $16 billion in spending reductions that his aides had said would be announced. (A1.)

MILAN, Italy IT seems like only yesterday when the annual Salone del Mobile Italiano, the Italian furniture fair, was a straightforward event. There were good designs, disappointing designs and the innovative furniture prototypes that everyone knew would never be produced. A far more confusing state of affairs was presented this year. The good designs were there, as were the disappointing ones - as well as those that would never be mass-produced. The only problem was that this time there was little agreement as to which was which.

President Reagan, hastily reshaping his new economic package to improve its chances of passage in Congress, was leaning today against committing himself to the full $16 billion in spending reductions that his aides said earlier would be included in his speech tomorrow night. In a continuing atmosphere of uncertainty, Mr. Reagan spent much of his day conferring with budget officials and working on a television address tha t his Adminstration hopes will bolster the resolve of Congress to c ut spending for the second time this year. On Capitol Hill, however, Mr. Reagan's allies remained in disagreement on how to approach the problem the President plans to address tomorrow: keeping the budget deficit for the 1982 fiscal year from growing as much as $20 billion beyond the $42.5 billion target for the deficit set earlier in the year. Reports on Military Disagree Various Republicans, for example, prepared plans to cut military outlays by more than the $2 billion that Mr. Reagan proposed for the coming fiscal year. Some Republican Congressional aides said the White House had suggested Mr. Reagan would grudgingly accept such cuts. White House officials countered that Mr. Reagan would not.