Everybody wore big blue buttons that announced "I am a friend of Ray Donovan," except the guest of honor, whose button said "I [SYMBOL OMITTED] Bayonne." And almost everybody had a New Jersey accent.

Three "Friends of Donovan" dressed as Arab sheiks. They stuffed fake money into the hands, purses and pockets of the 900 who came to the Mayflower Hotel to show their support for the embattled secretary of labor last night. Attorney General William French Smith, Health and Human Services Secretary Richard S. Schweiker, CIA Director William Casey and White House Chief of Staff James A. Baker III were all there. Presidential counselor Edwin Meese III delivered a tribute to the man who largely organized New Jersey for Reagan in 1980.

But the president had something else to do.

While Ronald Reagan was on national television justifying the 10.1 percent unemployment rate, the man who in any other administration would have been in the thicket of such things, was being honored at what could best be described as a survival dinner.

The Friends of Raymond Donovan, a hooting and hollering sellout crowd, turned out for a $50-a-head tribute to the labor secretary -- who has clung to his job even though he has been a continuing embarrassment to the administration through persistent allegations that he had past ties to organized crime.

One month ago yesterday, special prosecuter Leon Silverman closed the second phase of an investigation of Donovan, saying there was "insufficient credible evidence" to support 14 allegations involving Donovan's alleged organized crime connections. It was the climax of a year of headlines in which Donovan has been featured in as many stories involving the Mafia, lawsuits and mob-style executions as the formulation of labor policy.

"It certainly wasn't a pleasant year," said Donovan's wife, Catherine. "He's more relaxed and it's nice to finally read about his accomplishments."

Under a stream of sweltering television lights, Donovan glided into the jammed ballroom to a two-minute standing ovation. The band played "I'm a Yankee Doodle Dandy" as he waved to the yelling, whistling throng. It was a little like a GOP convention. One woman carried a placard reading "Morristown New Jersey Loves You."

"I always believed and I still believe that there has only been one resurrection in the past 2,000 years," Donovan deadpanned to the crowd. "But some people tell me I've had four." Everyone roared.

In his brief, polite remarks, Meese called Donovan a "good friend" and brought well-wishes and congratulations from the president.

"It has been said that the quality of the man is tested not by triumph but by adversity . . .," said Meese. "It's the kinds of qualities that Ray displays that you sometimes forget about--the ability to do the job day after day despite what morning papers said or what he might have felt. . . . And Ray's ability to maintain a sense of humor even in the darkest days which I can only attribute to his Irish backgound."

Sponsored by the conservative Young Americans for Freedom, the formal filet-mignon evening was billed as a nonprofit event with extra proceeds going to Donovan's favorite charity.

"He's the shining example of the implementation of the Reagan agenda. He has done an excellent job," said the main organizer, Steven Some, treasurer of YAF and a lobbyist for the Coastal Corp., which represents oil and gas interests.

YAF executive director Sam Pimm said, "To some extent the bad publicity did render him helpless in certain programs he wanted to see through and that was in the interest of those who accused him. He's not a favorite of organized labor . . . It's no secret that he's not one of Lane Kirkland's favorite people . . . And if that's what they intended, they did a good job."

The most elusive guest of the evening seemed to be Ronald Schiavone, chairman of the board of Schiavone Construction Co., Donovan's former firm, on which the special prosecutor's investigation focused. Three in the crowd said they saw him, but he always seemed to have just slipped away. His company took out a full-page ad in the slick souvenir program.

The dinner last night was faintly reminiscent of a similiar testimonial occasion last year for then-national security adviser Richard V. Allen. He was being investigated because of two watches and $1,000 he accepted from Japanese journalists in exchange for arranging an interview with Nancy Reagan. Although he was cleared of wrongdoing, Allen was forced to resign three weeks after the testimonial.

Flashbulbs burst when Allen, a good friend of Donovan, made his late entrance. "I'm here to pay tribute to a patriotic American and a friend who has been an asset to all of us," Allen said.

An unusual tribute on an unusual night, the Donovan dinner ran the risk of being the story of the day until the White House scheduled Reagan's speech for the same evening at the same time. But even before Reagan scheduled the nationally televised speech focusing on the signing of a jobs bill, sponsors of the dinner were told the president wasn't coming.

Nonetheless, the administration was amply represented.

"Be sure and put down that I was here because I have to go deliver a speech at the Grocery Manufacturers," said Schweiker. "I've been in this game a long time -- 22 years -- and I'm telling you that 95 percent of the people would not have taken what Ray Donovan took. Ninety-five percent would have quit."

One senior White House adviser who asked not to be identified said, "My feeling is that it's bizarre for him to be involved in this right now. I mean, this was set up right in the middle of the investigation. He's not going to go quit unless the presdient asks him to go and Ronald Reagan likes him . . . He's Irish, he tells good stories and he has a good sense of humor. There's a good personal chemistry between them."

When the attorney general was asked by a TV reporter whether he thought it was ironic to be attending a dinner for a man the Justice Department had investigated, Smith snapped, "You've got your facts wrong. He was being investigated by a special prosecutor . . . The facts speak for themselves."

Outside a private VIP reception before dinner, at least 30 reporters and cameramen crowded the hallways, while a GOP hawker sold Reagan, Nixon and even Goldwater presidential election memorabilia. Inside, a relaxed Donovan greeted his friends, mostly New Jersey supporters. "I forget yesterdays," said Donovan. "Human beings have that capacity, and we forgive. I'm not going to worry about what happened. I couldn't feel better tonight."

Asked if he was planning on staying at his job, he said with a wink, "You betcha I am."