January 21, 1983

President Reagan, contending that his Administration never got from Congress the full economic plan needed to cure the recession, hailed his first two years in office today and insisted that he now had ''America on the mend.'' ''For all our troubles, midterm finds this Administration and this country entering a season of hope,'' the President said at a White House news conference News session transcript and excerpts from midterm report, pages A14-15. in releasing a 118-page review, financed by the Republican National Committee, that portrayed a stewardship of virtually unqualified progress. ''We inherited a mess, we didn't run away from it and now we're turning it around,'' Mr. Reagan declared later at a partisan, noisy pep rally of hundreds of political appointees to Government management jobs who gathered to celebrate the two years of incumbency.

Twenty-six present and former city police officers, including five sergeants, have been subpoenaed in a Federal undercover investigation of illegal activities at after-hours clubs and bars in Manhattan, Federal and city law enforcement officials said yesterday. While it was the largest number of police officers involved in a corruption inquiry here in many years, authorities said the case did not indicate any widespread pattern of police corruption reminiscent of the early 1970's. At that time, an inquiry by the Knapp Commission found pervasive, institionalized corruption in the Police Department. The officers, who were given the subpoenas in a coordinated action by Federal agents before dawn Tuesday, are being called to testify before a Federal grand jury looking mainly into allegations of payoffs to police officers to protect after-hours establishments in Chelsea, in Greenwich Village and on the Lower East Side.

Marking the 20th anniversary of the friendship treaty between West Germany and France, President Francois Mitterrand urged unity in the Atlantic alliance today and warned against attempts to separate the United States and Western Europe. In a speech to Parliament here, the French President also criticized the Soviet military buildup and, calling his country ''a loyal partner'' of the Western alliance, strongly defended what he called the need to deploy American medium-range missiles if no arms agreement is reached in Geneva. Couched in diplomatic and at times elegant language, Mr. Mitterrand's speech appeared aimed at bolstering the weakening support in West Germany for the missile deployment, which has been defended by Chancellor Helmut Kohl's Christian Democrats. 'The Maintenance of Peace' The tone of the speech also suggested French concern over the drift of the military debate in West Germany, particularly in the Social Democratic Party, at the start of the campaign for the March 6 elections.

President Reagan has decided to include in his Budget Message to Congress a package of about $135 billion in tax increases that could be levied later in the decade to help hold down the deficit, Administration officials said today. The taxes will be presented as contingency measures, to be imposed over a three-year period only if the deficit does not come down to a satisfactory level after the fiscal year 1984, which ends on Sept. 30, 1985. But officials said the President, in the message he will present to Congress at the end of this month, will include in his budget projections for the fiscal years 1984 through 1988 the $135 billion in revenues that would be raised from the contingency taxes. This would permit him to show smaller deficits for those years, even though the tax might not go into effect.

President Reagan plans to include a $135 billion package of contingency tax increases in his budget message, according to Administration officials. The taxes would be imposed later in the decade if needed to help hold down the deficit. (Page A1.) Some economists argue that the huge deficits projected by the Administration would not necessarily harm the economy. (D1.) Paul A. Volcker, chairman of the Federal Reserve, said that if the Fed is to gain the flexibility to work for a recovery, projected deficits must be narrowed. (D3.) Mr. Reagan praised his handling of the economy so far. Releasing a G.O.P.-financed review of his first two years, he contended that although Congress had not given him the economic plan needed to cure the recession, he now had the country ''on the mend.'' (A1.)

With a disabled Soviet satellite falling toward earth ever faster, the Defense Department said yesterday that it was expected to plunge into the atmosphere and possibly scatter debris over the surface sometime between early Sunday morning and Monday afternoon. The nuclear-powered satellite's ''re-entry window'' was set at from 1 A.M. Sunday to 3 P.M. Monday, Eastern standard time. Somewhat more precise predictions will be issued as the satellite gets even closer to the upper fringes of the atmosphere. No one can predict where pieces of the satellite might land, if anything survives the fiery plunge. Another Fell 5 Years Ago The North American Aerospace Defense Command, which tracks all space traffic, reported that the main body of the satellite, Cosmos 1402, was descending at a rate of 4.4 miles a day. Its latest calculated orbit ranged from a high of 118 miles to a low of 113 miles. The spacecraft should begin encountering the earth's atmosphere at an altitude of about 100 miles.

In putting together his 1984 budget, President Reagan faces deficits so vast that they alarm all former Treasury Secretaries still living and even his otherwise staunch allies among Republican businessmen. In the fiscal year 1980, the last full year of the Carter Administration, the deficit was $59.6 billion. Based on what is known of the upcoming budget that the President will present on Jan. 31, the deficit in the fiscal year 1984 will be around $185 billion, three times as large. Nevertheless, some prominent economists and Administration officials contend that deficits, even of this size, are not necessarily harmful to the economy. At certain times, they argue, a deficit can be lived with, and at other times it can even be beneficial. The questions they face are: When is a deficit big enough to derail an emerging recovery, and when can a deficit help revive a weak economy?

Price increases for most basic steel products - the first in nearly two years - were announced yesterday by the United States Steel Corporation, Armco Inc. and the Inland Steel Company. The three companies are ranked first, fifth and sixth in size in the United States. Thus eight of the country's largest steel companies, which together account for more than 80 percent of the country's domestic steel production, have announced price increases in the past three days. The increases, which become effective next month, average 6 percent and cover carbon and alloy sheet, strip, and plate products, used in making autos and appliances, machinery, shipbuilding and construction beams. Current steel prices average just under $500 a ton, and the average increase would be about $30 a ton.

Because of a mechanical error, opening sentences were omitted from an article about an Urban League survey of black America in the Late Edition yesterday. The article is reprinted today on page A11.

A decade ago, the engine makers for the aviation industry were doing business in a far simpler world. Pratt & Whitney dominated the market, each plane model was matched with a specific engine from a specific company, and the demands of the airframe makers and the airlines were easier to meet. Today, the Pratt & Whitney Aircraft Group has two formidable competitors - Rolls-Royce and the General Electric Aircraft Group, which also has a joint venture with a French company - and each of the more efficient planes, the Boeing 757 and 767 and the Airbus A300 series, can be fitted with engines from at least two of the manufacturers. ''Things are quite different today,'' said Robert J. Carlson, executive vice president of the power sector of the United Technologies Corporation, the parent company of the Pratt & Whitney Aircraft Group. ''The risk is so much greater and the cost of development is so much greater,'' he said in an interview in his office in Hartford.

The Cuomo administration announced plans today to add 7,000 cells to new or existing prisons around the state to try to reduce severe overcrowding. Some of the new cells will be built by converting existing prison buildings; others will be portable steel units. All cells will be for maximum-security prisoners, aides to Mr. Cuomo said. The Governor will also seek to establish so-called pre-release prisons near urban areas, where inmates will be sent when they have six months or less remaining on their sentences, the aides said. It was not clear how many of these would be built.

THE Winter Antiques Show has again transformed the interior of the Seventh Regiment Armory, that sprawling red brick fortress at Park Avenue and 66th Street, into a nine-day bazaar stocked with an exotic abundance of vintage wares that originally decorated everything from barns to palaces. The show, the country's most highly regarded antiques fair, establishes trends and sets prices for the entire antiques field. Most of the 73 dealers exhibiting this year have saved their rarest wares to present at this show. Once again, other events have been scheduled during the run of the show to attract antiques enthusiasts from across this country and from abroad. Auctions and presale exhibitions of public sales will be held at Sotheby Parke Bernet, Christie's and Phillips, Son & Neale (for details, see the Auctions column, page C26), and the World Antiques Market Conference takes place Sunday through Tuesday at the Plaza Hotel. There are also two decorative-arts shows: marine paintings from the 18th through the 20th century are at the Smith Gallery, 1045 Madison Avenue, at 79th Street, through Feb. 26, and an exhibtion of 30 China trade paintings from the 19th century is at the Berry-Hill Galleries, 743 Fifth Avenue, at 57th Street, through Feb.12.