The Federal Communications Commission yesterday cleared the way for a subsidiary of American Telephone & Telegraph Co. to offer portable hand-held and automobile phone service in Washington and Baltimore.

The new "cellular" system will permit thousands of calls to be made simultaneously by dividing the respective cities into numerous "cells"--each with its own transmitter and switching capabilities. The cellular approach would replace the current mobile-telephone system in Washington which currently allows only 20 calls at any one time.

"We're looking at starting service in mid-1984 in both Baltimore and Washington," said Brian R. Wood, a spokesman for Bell Atlantic, the regional holding company that will serve the mid-Atlantic region after the breakup of the Bell System on Jan. 1. He estimated the cost of building the cellular systems in those two cities at approximately $15 million. Roughly a third of the Washington system would be owned by Continental Telephone Co. of Virginia.

The FCC created the cellular service early last year by setting aside sufficient radio frequencies for two systems in each major metropolitan area. It then reserved one of the systems for local telephone companies. AT&T had set up a mobile phone subsidiary, called AMPS for Advanced Mobile Phone Service Inc., to provide the service. However, the breakup of AT&T will mean that the regional operating companies split off from Bell will assume operating responsibilites from AMPS.

Because the FCC had said it would hold special hearings if it received more than one application for any cellular radio license, the telephone industry--led by AT&T and General Telephone & Electronics--quickly negotiated partnership ventures in the nation's 30 largest cities to avoid such hearings.

There are currently three applicants for Washington's remaining nontelephone company license. Yet, in an effort to avoid a competitive hearing and speed the approval process, the applicants are now trying to negotiate a settlement that would enable them to present a single application for the Washington license.

"We are all seriously engaged in settlement discussions," said Wayne Schelle, president of American TeleServices Inc., which, with The Washington Post Co., is one of the three applicants for the available license.

The second applicant is a joint-venture between Metropolitan Radio Telephone Systems Inc., a new Washington consulting firm specializing in cellular radio; Metromedia, the multimedia conglomerate; and Advance Radio Communications Co., an Alexandria-based paging and mobile radio company.

The third applicant is Cellular Mobile Systems of D.C. Inc., a wholly owned subsidiary of Graphic Scanning, a New Jersey-based telecommunications company.

"We just can't wait to get going," Schelle said, adding that he was confident that an agreement between the parties could be reached by mid-September.

Should that occur, said Schelle, the group system could be commercially operational by the first of the year, long before the AT&T/Bell Atlantic service is built. That would be possible because American TeleServices could use an experimental cellular radio system that the company has been offering over the past year.

In its order yesterday, the commission also authorized cellular radio construction in Detroit and Dallas-Fort Worth as well.

The Washington Post Co., through Cellular Telecommunications Inc., has applications pending in Baltimore and Detroit and is part of a joint-venture application in Miami.