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In the hours before President Reagan finally turned down Soviet leader Mikhail Gorbachev and left Iceland empty-handed Sunday night, the two leaders almost agreed to the most sweeping and radical weapons reductions since the dawn of the Nuclear Age.

Working through Saturday night, high-level negotiators hammered out draft agreements or sharply narrowed differences on virtually every major arms-control issue, according to senior administration officials.

In the end, though, they clashed in the one area that had divided them all along, the Strategic Defense Initiative.

Reagan refused Gorbachev`s insistence that the 1972 Anti-Ballistic Missile Treaty (ABM) be modified to limit all research, testing and development of SDI to the laboratory, U.S. officials said.

Although Reagan is sure to be criticized sharply for his decision, his top aides asserted that the alternative would have been effectively to halt the United States` quest to develop a defense shield in outer space.

”You`d be killing the golden goose and the goose that laid the golden eggs,” one senior administration official said. He echoed other U.S. officials` contention that the Soviets were motivated to undertake arms-control efforts in the first place only because of their concerns over SDI.

Physically drained and emotionally exhausted, several of Reagan`s top aides recounted their alternating exhilaration during the talks and deep disappointment at being unable to make a deal.

”We made more progress in the last 24 hours than we`ve made in four years,” said one weary American negotiator. ”(But) they wanted to have a whole (arms) package or not have a package at all. They made it clear that if we could not agree on defense and space, nothing could be agreed upon.”

Another U.S. negotiator said: ”There were about nine times today when it looked optimistic, like the whole thing was going to happen. But there were 11 times that it didn`t.”

Before quitting, however, the two sides made what one U.S. official described as ”unprecedented” progress on several fronts.

Spurred on by their leaders` desire to reach a broad-scale deal, the negotiators had concluded a draft accord on reducing all intercontinental offensive nuclear weapons by 50 percent over the next five years.

Specific language for the accord was agreed on and drafted, U.S. officials said. The deal would have limited each side to 6,000 nuclear warheads by the end of 1991.

A second, more stunning pact also was ”agreed to in principle,” a senior official said: Each side would eliminate all its offensive long-range nuclear missiles within a decade.

Taking the top arms-control obstacles one by one, the six American negotiators settled with their Soviet counterparts on a phase-by-phase agreement to limit and eventually halt nuclear tests–as long as it was done in connection with overall nuclear-weapons reductions.

Turning to medium-range missiles in Europe and Asia, the two sides agreed to slash drastically the number of missiles, leaving each nation with 100 warheads.

Intermediate- and short-range missiles would be removed from Europe altogether.

Taken together, these potential arms-control achievements were breathtaking, according to the U.S. officials. But, in the end, so was the sense of regret.

”We went 99 yards and didn`t score in the final yard,” one senior White House official said.

Another U.S. negotiator said he maintained cautious hopes, always mindful that the SDI issue could become an insurmountable obstacle. But as each issue seemed to be agreed upon, he said, his optimism took over.

”One built a lot of hope, obviously on the successes we achieved bit by bit,” this official said. ”But the Soviets made it clear that nothing was agreed until everything was agreed.”

Facing each other across an upstairs table at Hofdi House, the official Icelandic government guest house, the two teams of negotiators encountered relatively few stumbling blocks.

The arms-control experts moved easily from issue to issue.

”We didn`t have real problems getting stuck on things,” a U.S. negotiator said. ”We just said, `If we can`t agree on that, let`s refer it to our bosses.` We didn`t have (a) problem; we just kicked it upstairs.”

One example came during the talks on intermediate-range (INF) nuclear weapons, when the two sides could not come to an agreement late Saturday night on U.S.-proposed limits for Soviet missiles based in Asia.

”The problem we had was that nobody on the Soviet side seemed to have the authority to make decisions on the Asian systems,” a U.S. official said. ”So we said, Let`s leave it up to the leaders.”

On Sunday morning, fewer than four hours after the negotiating teams broke up, Gorbachev surprised Reagan by suddenly suggesting a way out.

”He said, `Why don`t we limit our missiles to 100 in Asia and take them completely out of Europe,` ” the official said. ”The President said, `That`s fine.”`

While his negotiators tried to refine details and come up with new ideas, Reagan was constantly on the move, going upstairs to exhort his aides, then returning downstairs to Gorbachev with the latest formulations–to no avail.

Later, the U.S. negotiators grudgingly tipped their hats to the Soviet delegation.

”They`re very good negotiators,” another member of the U.S. team said.

”They were maximizing the pressure that could be placed on our President”

by agreeing to drastic missile reductions–if only he would bend on SDI.

Sunday night, after working nearly nonstop for 24 hours, the U.S. team did not have to be told their efforts had come to naught.

”At about 7:30 tonight, the President, instead of coming up, stayed on the first floor,” said one. ”We were told to go to the side door to see the departure of the motorcade. We knew then that it wasn`t working out.”

In the ensuing moments, chief U.S. arms negotiator Paul Nitze stopped to bid farewell to his counterpart, Gen. Sergei Akhromeyev, Soviet chief of staff.

”He was very friendly,” said one observer, recalling the Soviet general`s reaction. ”But he kept saying, `Don`t blame me, don`t blame me. . . .