The regulatory clouds are beginning to clear for Advanced Genetic Sciences Inc., which wants to spray a strawberry field with a genetically engineered pesticide.

AGS, based in Oakland, has waited two years to test its new pesticide while federal agencies, the courts, congressional committees and a White House task force studied the question of how the government can regulate the commercial products of gene-splicing.

Now, AGS is expected to win federal permission soon to conduct an outdoor field test of its pesticide, which would involve the first release into the environment of a genetically altered organism.

That decision would be welcome news for biotechnology companies that are eager to use gene-splicing to create disease-resistant crops, pesticides, microbes to eat oil spills and other products with an estimated market potential in the billions of dollars.

But the decision also may stir up storms of opposition from groups who say that the emerging regulatory structure lacks a firm scientific foundation. They fear that the government has started approving such experiments without really knowing the risks involved.

The Environmental Protection Agency has taken great care with the AGS case, because it knows it will establish a precedent and is likely to be challenged in court, said Steven Schatzow, EPA's director of pesticide programs. "We're trying to do a really careful, thorough job," he said.

"Biotechnology" refers to the use of living organisms to produce desired goods and includes processes that have been around since yeast first was used to make bread and beer. New methods of gene-splicing, cell fusion and fermentation now are being used to create disease-resistant crops, microbes to control pests, amino acids to sweeten soft drinks and enzymes to clear hair-clogged drains.

But until recently, biotech companies have found it easier to manipulate genes than to guide their products through an evolving federal regulatory system. Companies were unsure which federal agency to approach with a new product, while environmentalists and ecologists questioned the ability of any of the regulatory agencies to assess the risks of the new technology. Agencies were unsure how to evaluate and approve new products in a way that would ensure the public safety while not hurting the growth of a promising new industry.

In the absence of a federal regulatory system, the courts were dragged into the controversy over releasing genetically altered organisms.

AGS and other biotech companies voluntarily had asked the National Institutes of Health to review their experiments because NIH had experience in evaluating gene-splicing research conducted by publicly funded scientists.

In 1983, NIH approved an experiment, funded by AGS, that would have involved the first release of a genetically altered organism. But a federal court judge decided in May 1984 to block the experiment, ruling that NIH had approved it without properly documenting its review of the environmental effects of such releases. U.S. District Judge John Sirica blocked the experiment, which would have used a genetically altered microbe to prevent frost from forming on potatoes, and ordered NIH not to approve other similar experiments.

The U.S. Court of Appeals for the District of Columbia ruled in February that NIH may approve experiments that would release genetically altered organisms, but only after conducting formal environmental assessments.

NIH now has completed an environmental assessment of the potato frost experiment but must go back to court and ask Sirica to allow the experiment to go forward.

While the court battle dragged on, federal agencies individually and through an interagency task force began taking steps to establish a regulatory framework.

The White House Cabinet Council Task Force on Biotechnology, representing 15 federal agencies, concluded last December that existing laws and agencies could handle biotech products and later published a guide for companies seeking their way through the system.

That panel, now called the Domestic Policy Council Working Group on Biotechnology, plans to publish within two weeks its new proposal for a committee to coordinate the scientific work of the individual agencies, said David T. Kingsbury, working chairman of the White House group. See box on previous page.

The agencies, meanwhile, are handling proposed experiments and product approval applications on a case-by-case basis, drawing on the expertise of scientists within the agencies and in academia.

Now, the biotech industry sees products being approved and agencies reviewing proposals. "We're very encouraged by what we see," said Leonard J. Guarraia, director of regulatory affairs for Monsanto Co., which has asked EPA for permission to conduct an outdoor test of a genetically altered pesticide. "We see a road map on what we need to do to bring to commercialization the fruits of our research."

Biotech companies working on microbial pesticides or industrial chemicals now know to knock on EPA's door. The Food and Drug Administration has approved two human pharmaceuticals produced through gene-splicing, insulin and growth hormone, and plans to handle other genetically engineered substances used as food additives or in cosmetics.

The U.S. Department of Agriculture is reviewing one application from a private company that wants to conduct an outdoor test of a genetically altered plant and plans to conclude the review next month.

NIH plans to continue to monitor the new biomedical research uses of recombinant DNA technology -- the alteration of the genetic code carried by DNA (deoxyribonucleic acid).

"I think we're making progress," said Orville G. Bentley, USDA assistant secretary for science and education, who represents USDA on the White House biotech panel. "We want to ensure safety and reduce risk, but don't want to be a chilling hand on business."

But as the regulatory structure goes up, some groups are expressing doubts about its scientific foundation. The most controversial issue is the release of genetically altered organisms into the environment. Environmentalists and ecologists argue that the government lacks the ability to predict the environmental effects of releasing organisms outside contained laboratories. They fear that, once released, such organisms could multiply, migrate and cause widespread damage.

"I don't think we have a science base that allows us to make reasonable, sound predictions about what might happen," said Jack Doyle, director of the Agricultural Resources Project for the Environmental Policy Institute, a nonprofit research and lobbying organization. Speaking of the AGS strawberry frost experiment, he said, "EPA has done as good a job as they can do, but there are enormous holes" in its evaluation.

Jeremy Rifkin, who led the legal challenge that halted the potato frost experiment, said after the announcement last week that "EPA has caved in to White House pressure."

Scientists have not yet developed methods to measure the effects of such microbes on the environment, Rifkin said.

Some observers say that more knowledge is needed, but enough exists to proceed. "There are unanswered questions about the potential impact of releasing genetically engineered organisms into the environment," said Robert B. Nicholas, a private attorney who specializes in the regulation of biotechnology. "But this does not preclude a case-by-case analysis of individual experiments and the approval of experiments. . . . If you want 100 percent certainty, you'll never do anything."