Legislation to move the Museum of the American Indian from its troubled New York City home to a high-profile spot on the Mall will soon be introduced in Congress, Sen. Daniel Inouye (D-Hawaii) announced yesterday.

Flanked by a delegation of Native American leaders strongly supporting the move, Inouye told a press conference at the Russell Senate Office Building that he is working closely with Sens. Alfonse D'Amato (R-N.Y.) and Daniel Moynihan (D-N.Y.) to solve a long-running dispute over the museum.

What could emerge is a compromise that would allow the museum to maintain a standing exhibit in New York but would move the bulk of its collection to Washington.

"A solution is not too far away," said Inouye, the chairman of the Senate's Select Committee on Indian Affairs, who came to the press conference immediately after the Iran-contra hearings. "And I am certain that when the dust settles there will be an Indian museum on the Mall."

Because of space constraints at the museum's New York quarters, most of the collection of artifacts -- the largest of its kind in the world -- is housed, and consequently hidden, in a Bronx warehouse. Frustrated by such limitations and concerned by the crime rate in the museum's upper Manhattan neighborhood, the museum's board of directors has battled with city and state officials in New York over a new location.

Trust restrictions established by museum founder George Heye require that the museum remain in New York "unless facilities are not available." Museum directors suggested at one point that its collection be moved to the Custom House in Manhattan, but city officials were hesitant to accept the plan. Directors then suggested the construction of a new museum on the Mall between the Botanic Garden and the National Air and Space Museum, which Smithsonian officials endorsed. But the New York Supreme Court first would have to set aside restrictions in the trust.

Earlier this month, Moynihan said he wanted to keep the museum in New York. Inouye said yesterday that he recognizes both the interest New York has in keeping the museum and the legal obstacles imposed by the trust, but stressed that he believes a compromise will be reached and the museum's collection will come to Washington.

"By some sad coincidence there is not one single mounument or memorial honoring Native Americans in Washington," Inouye said. "It is time to change that situation. It would be a simple move, and one I believe the American people would favor."

Native Americans apparently do. Suzan Harjo, the executive director of the National Congress of American Indians, which represents about 180 tribes in the United States, said that a resolution passed at the congress' midyear conference last month overwhelmingly supported the move to Washington.

"The one voice that has not been heard in this controversy is that of the Indian people," Harjo said, "and it is clear they want to see the museum in the nation's capital."

Harjo and four other high-ranking Indian officials traveled to New York yesterday to tour the museum and warehouse, and described what they saw as "a real shame."

Inouye said that last spring he toured the Bronx warehouse, where more than a million items are stored, and that he "left that place feeling sick."

He told of looking at a stack of firearms atop a file cabinet and discovering a rifle that was identified as a gift to Sitting Bull, the Sioux leader, from President Ulysses S. Grant.

Yesterday's tour "was very shocking," said Allen Pinkham, chairman of the Nez Perce' Tribe. "Many of those items are very sacred to us, and they're just stored away on a shelf or put in a drawer, where no one sees them."