Twenty persons, including four who were described by law enforcement officials as major rackets figures here, were arrested yesterday in connection with elaborate cocaine smuggling and distribution rings that allegedly operated out of at least two downtown restaurants and bars.

Those arrested, in addition to the four said to be rackets members included a man described by police as the assistant manager of The Palm restaurant, at least two waiters and a bartender there, and the owner of Sylvester's Restaurant. Both restaurants are located in the 19th and M Streets NW area.

Investigators said an undercover drugs agent purchased narcotics from employees of The Palm - a posh steak-and-lobster house that caters to lawyers and other professionals - in the restaurants itself, and that the same agent attended what participants called a drug "summitt" meeting at Sylvester's.

The arrests ended a nine-month undercover operation by the Drug Enforcement Administration, the FBI and the Metropolitan police department. The distribution network broken up allegedly included drug shipments into the District from New York, Colorado and South America.

Arrest teams began making the arrests after three men allegedly came to a downtown hotel at 2:30 a.m. yesterday to pick up what they thought was three pounds of high quality cocaine that was coming into the city from Columbia, investigators said.

They said Richard McCaleb, 38, of 2301 Jefferson Davis Hwy., Arlington, who prosecutors said has a past gambling conviction, was arrested inside the Capital Hilton Hotel at 16th and K Streets NW after picking up the package. Authorities would not disclose what the package actually contained.

Arrested a few blocks away, investigators said were Norman J. Smith, 41, of 7420 West Lake Ter., Bethesda and Gerald M. LaCompte, 36, of 6100 Westchester Park Dr., College Park. Both men also have last gambling convictions, federal investigators said.

A fourth man, David McGoowan, also described by federal prosecutors as having a past gambling record, as arrested in Florida. McGowan lives in the Washington area, investigators said, but his exact address here was not available.

Details of the undercover operation were sketchy yesterday because federal and city investigators who had worked on the case became involved in handling the various hostage-taking incidents in town.

Assistant U.S. Attorney Barry Leibowitz, of the major crimes division, said issuance of the arrest warrants yesterday did not mean that all those arrested would ultimately be charged in one massive drug-dealing conspiracy. Instead, he said, the warrants were issued because the major undercover agent involved had his cover "blown" when the "cocaine," deal from South America was culminated.

Most of the persons charged yesterday were arrested on the basis of warrants alleging single sales of possession of drugs.

Investigators said the drug agent was able to infiltrate the alleged cocaine underworld here after hearing numerous reports that drugs were being freely sold in certain restaurants and bars.

They said the agent, who claime to be an importer-exporter from out of town, earned the trust of some of those persons arrested by selling them cases of what appeared to be stolen liquor. Actually, the liquor had been purchased over the counter by the government and the tax stamps legally removed, investigators added.

They said in an arrest warrant that the main focus of the narcotics activity to be at Sylvester's, where the agent attended what he was told was a drug "summit" meeting after he complained about the qualitu of cocaine he had been sold.

Federal investigators said cocaine was used at the meeting and the undercover agent was told, in effect, that he should be happy with the quality that was available or else buy drugs elsewhere.

One investigator said Sylvester's was used as a "clearing house" to set up meetings between out-of-town drug dealers and persons interested in purchasing drugs here. In The Palm, the drug agent was able to make a purchase of cocaine after being introduced to the assistant manager, according to investigators.

One of the persons arrested yesterday was identified as Thomas Jacomo, described by police as the assistant manager of The Palm. Also charged was a man identified as Joe Swierderski, also known as Joe Winters, who was said by authorities to be the owner and manager of Sylvester's.

Police said some of the cocaine purchased during the probe was 94 per cent pure, and that the various groups involved allegedly dealt in quantities of more than a pound.

All those named were charged with either attempting to possess or distribute a controlled substance. The names of some of those arrested were not disclosed immediately by authorities.