The Justice Department said yesterday that under its settlement with American Telephone & Telegraph Co., the restructured company is likely to expand its market and product offerings, but that the government would act vigorously to ensure that the new local telephone companies are strong, independent firms.

After the settlement is implemented, AT&T "will be a procompetitive force in the markets that it enters" and probably will "expand not only its product lines, but also the areas in which it sells telecommunications services," the department said.

In a competitive impact statement filed in U.S. District Court here, Justice also confirmed reports that in early 1981 the government "discussed with counsel for AT&T" a decree that would have forced the company to divest a portion of Western Electric Co., the AT&T equipment subsidiary.

Under that scheme, AT&T also would have divested a small number of its local phone companies and would have been forced to set up a "separate business" to provide long distance service.

The government also said it "considered and discussed with AT&T" a settlement proposal "shortly before" negotiations that led to the January settlement. The proposal would have lifted some competitive restrictions on the Bell System and would have set up a "detailed and complex" set of rules for company practices. Justice said that plan would have "imposed substantial costs on AT&T and the United States" and "did not approach even remotely the effectiveness" of the pact signed by the two sides last month.

Filing the 53-page document is the first major step in U.S. District Judge Harold Greene's review of the Jan. 8 settlement. Under Greene's instructions, the papers are to be published in the Federal Register. Comments then can be submitted by the public to the court for up to 60 days. Greene also may decide to hold public hearings before determining whether the plan is in the public interest.

The agreement calls for AT&T to spin off 22 local telephone companies in exchange for an end to a government antitrust suit. In addition, Justice agreed to drop an earlier decree with AT&T that barred the company from offering unregulated products, such as data-processing services.

The Justice Department and the court both have authority to review the plan of reorganization submitted by AT&T, a proposal due six months after the decree is approved by Greene. A year later the divestiture is to be implemented.

In an effort to allay fears that the local companies would be weak, the government said it "would consider disapproving" a plan under which the local companies "were confined to a service area so limited as to bring into question their financial or technical viability" or the firms' ability to meet national defense and emergency needs.