May 11, 1985

President Reagan said today that he had agreed to the limit on military spending in the budget approved by the Senate early this morning after receiving a promise that he could come back for more money if he found that the national security was being harmed. Mr. Reagan said just last week that it would be ''irresponsible'' to pass a military budget that allowed an increase only to make up for inflation, which is all that is allowed in the 1986 budget approved at 3:08 A.M. today by the Republican-controlled Senate. The President's remarks today, made in Portugal before he flew home from his European trip, came hours after the Senate passed its $965 billion budget. The measure includes the limit on military spending and eliminates cost-of-living adjustments for Social Security and other Federal pension and benefit programs for one year. Secretary of Defense Caspar W. Weinberger will eventually urge Congress to restore some of the military cuts, senior Pentagon officials said. [Page 11.] House Must Draft a Budget In the next step of the process, the Democratic-controlled House takes its turn in drafting a 1986 budget.

The United States, West Germany and Israel announced a coordinated effort yesterday to track down and prosecute Josef Mengele, the elusive Nazi death-camp doctor. After two days of meetings in Frankfurt, the Justice Department said, law enforcement officials of the three countries ''resolved to open direct lines of communication at the prosecutorial and investigative levels'' with the goal of bringing Dr. Mengele to trial for ''crimes against humanity.'' West German arrest papers charge him with selecting victims for gassing and medical experiments at the Auschwitz death camp. Resurfaced and Disappeared The agreement, the most ambitious international effort since World War II to hunt down a former Nazi, comes 40 years after Dr. Mengele shed his SS uniform and boldly resettled in his hometown in the American sector of Germany. Later he disappeared, to resurface in South America under his own name, selling the Mengele family's line of farm machinery, before going underground again.

Just a decade ago, multinational companies were widely viewed as a scourge of the third world. Alarmed by the companies' intrusions into local politics and overwhelmed by their economic might, many countries nationalized foreign holdings or placed tight restrictions on new investments. But today, from China to Algeria, from Australia to Nicaragua, foreign multinationals are finding warm welcomes almost everywhere. Eagerly sought for the capital, technology and jobs they provide, the companies are being courted by developing and industrial countries alike. ''We feel that it is better to have partners than creditors,'' Francisco Swett, Ecuador's Finance Minister, said in a telephone interview. ''I can say that with full authority, having just refinanced our foreign debt.''

The war in Vietnam, which ended for the United States a decade ago, is being recalled with increasing frequency and vividness in courtrooms around the country as veterans charged with crimes cite their traumatic Vietnam experiences as their prime defense. In the past five years, hundreds of Vietnam veterans, maintaining that war in the rice paddies and jungles of Southeast Asia left them with profound psychological scars, have said they should not be held accountable for such crimes as murder, rape and drug dealing. They have maintained, in effect, that they thought they were back in Vietnam when they committed the crimes, that stress induced by the trauma of the war touched off by particular events in this country made them temporarily insane. Psychiatrists call this condition post-traumatic stress disorder. It achieved legal currency in 1980, when the American Psychiatric Association listed the syndrome in its revised manual of mental disorders. The manual defines the disorder as a condition induced by a traumatic event ''outside the range of usual human experience,'' touched off by conditions resembling or symbolizing the original trauma.

President Reagan returned to the United States today at the end of his European tour after urging ''significant reductions in nuclear arms'' and voicing eagerness for a meeting with the Soviet leader, Mikhail S. Gorbachev. At the same time, the President said at a news conference in Lisbon before his departure this morning that there was ''considerable evidence'' that the Soviet Union was not abiding by the 1979 strategic arms limitation treaty. And he said it was ''possible'' that the United States might not continue to honor the provisions of the treaty, which it has never ratified. Returning to Washington this afternoon, Mr. Reagan said at a ceremony at the White House that the 10-day trip had been a success. ''We think we're returning home mission accomplished,'' Mr. Reagan said as he spoke on the White House lawn surrounded by about 100 supporters, including Vice President Bush and several Cabinet officers.

At least 59 people were killed and 150 wounded in attacks and bombings by Sikh extremists Friday night and today, officials said. The casualties were inflicted in buses, a train, and crowded neighborhoods in the Indian capital and four northern states. In the latest incident the police said this morning that an explosion had killed at least nine more people here, raising the number of deaths in the city to 34. The Indian Army was called out to patrol sensitive areas of the capital this morning, a New Delhi official said. Four truckloads of soldiers in khaki uniforms and carrying automatic weapons were seen being deployed near a major bus terminal where one of the bombs exploded.

All week long, John Hadges's telephone has been ringing with orders for lilies by the dozen, baby's breath by the case, Gerber daisies by the box. Tomorrow is Mother's Day, maybe the biggest flower-giving day of the year, and that has meant a week of controlled frenzy for New York's flower district, centered on 28th Street between Broadway and Seventh Avenue, and the people who work there. What seems like a luxury - and an ephemeral one, at that - to most New Yorkers is a multimillion-dollar business to people like Mr. Hadges, 46 years old, and his brother, Peter, 40, who run American Cut Flowers, a wholesale company founded 47 years ago by their father, Gus. Diversity and Tradition For years, the trade has been dominated by Greek-American families like the Hadgeses. Lately the industry has been shaken up by new sources of supply, new methods of distribution and new arrivals to the street; last year a Korean opened a wholesale shop that sells mainly to greengrocers.

A Federal appeals court yesterday banned the sale of so-called wine coolers - wine diluted with fruit juice - in New York State's supermarkets and groceries and struck down as unconstitutional the state law authorizing their sale. The court upheld the ruling of a lower Federal court in January. That ruling said the state law discriminated against similar out-of-state products by authorizing sales, in the state's 23,000 supermarkets and groceries, only of coolers made with New York State grapes. The court yesterday ordered the State Liquor Authority to revoke the licenses of the 5,200 supermarkets and groceries stores that have permits to sell the product, and it forbade further sales except in licensed package stores. The ruling is to take effect at the end of May.

It was 25 years ago that Rio de Janeiro was cruelly stripped of its title and left to live off its grace and beauty. Yet a secret yearning to be Brazil's capital lives on here. While Government decisions now emanate from the desolate, modernistic plains of Brasilia and the economy is moved by the industrial might of Sao Paulo, Rio de Janeiro still claims to be the real heart and mind of the country. ''Rio continues to be the intellectual and cultural center of Brazil,'' said Darcy Ribeiro, Deputy Governor of Rio de Janeiro State. ''Rio is the home of Brazilians, it is the home where people live, it is the Rome of Brazil.''

The United States blocked parts of a Security Council resolution tonight that called for an end to the recently imposed American trade embargo against Nicaragua. After vetoing paragraphs in the resolution that were critical of American actions, the United States delegate joined other Council members in unanimously passing a resolution supporting the peace initiatives put forward by the Latin American nations known as the Contadora group. In an unexpected move, the United States delegate, Jose S. Sorzano, invoked a rule calling for a paragraph-by-paragraph vote on the resolution to illustrate what he called ''broad agreement'' between the United States and Nicaragua. The provision was said to have been last used in a 1962 Security Council debate.

The Interior Minister, in a speech to Parliament assessing the state of public order, today accused the secret services of the United States and other Western countries of sponsoring political subversion in Poland. Scarcely two hours after two United States diplomats left Warsaw under expulsion after having been accused of taking part in an illegal May Day procession, the Interior Minister, Gen. Czeslaw Kiszczak, sought to portray Poland's political dissidents as ''fanatics'' or ''confused'' foils of foreign interests, notably American. His speech, which accused Washington of using diplomats, students, reporters, tourists and Polish emigres for spying, constituted the sharpest in a series of Polish attacks on the United States that have increased in the two weeks since Mikhail S. Gorbachev, the Soviet leader, met here with Gen. Wojciech Jaruzelski, the Polish leader. [In Washington, the State Department had no immediate formal comment on General Kiszczak's speech, but department officials called his accusations of American espionage activities ''outrageous.''] General Kiszczak, who has long courted the reputation of a political liberal, said, ''Threats to key political, economic and defensive interests have been aggravated in accordance with guidelines laid down by Western, especially American, security services.''

A convicted gang leader today retracted his earlier testimony that Taiwan's former military intelligence chief had ordered him to murder a Chinese-American writer in the United States. The former intelligence chief, Adm. Wong Hsi-ling, 58 years old, was director of the Defense Ministry's intelligence bureau. He was the highest-ranking Chinese Nationalist military officer ever court-martialed, and he was sentenced to life imprisonment by a military court on April 19 after he was found guilty of instigating the murder of Henry Liu.