The 22-year-old Chilean had just stepped out of his Adams-Morgan apartment last week when two immigration agents, looking for an Iranian, stopped him and asked in Spanish for the documents that would prove he was here legally.

Even though he couldn't produce his papers immediately, it should have ended there, the agents' superior said yesterday. But in swift succession, the agents entered his apartment and arrested the man and a brother-in-law on immigration violations.

The incident has provoked concerns beyond the mistaken arrest of two men, however. As part of an effort to encourage Hispanics and aliens to participate in the 1980 census, the Immigration and Naturalization Service had said it would not conduct any "sweeps" for illegal aliens or spontaneous searches from April 1 to July 1.

"We have been working very, very hard trying to convince people not to be afraid to participate in the census," Leopoldo Bonati, director of communications for the Council of Hispanic Committees and Agencies, said yesterday. "But when Immigration does something like this, it scares people away."

Such incidents, both INS and census officials say, have been rare.

"We've had maybe four of five since the census started," said Ted Clemence, a census spokesman. "The one we were really concerned about was in Galveston, Tex., where one agent supposedly identified himself as a census taker and than rushed in when the man opened his door. But beyond that, they've been minor and have blown over pretty quickly."

Local government and community leaders say it is important for all residents to participate in the census because the population figures are used to determine the amount of federal aid localities receive.

But there are many foreigners here who, because they are here illegally or have undocumented aliens living with them, don't respond because they believe the information they provide may be passed on to the INS.

The federal government has said repeatedly that no census information will be made available to other agencies. And in an effort to help calm the aliens' fears, the INS had issued a directive prohibiting many types of searches until the census-taking period was essentially over.

The local Hispanic community points to the case of the Chilean as an example of how the INS can go overboard in enforcing immigration laws.

The Chilean, Juan Pizarro, was followed back into his apartment by the agents, who then questioned seven other family members about their status here. a

Three family members, including the brother-in-law visiting from Cuba, were found to have overstayed their visitor's visas by five days. They explained that they had checked with the NIS, however, and been told not to bother filing for new visas. But the agents went ahead and arrested the brother-in-law, and charged him with being here illegally even though he had a plane ticket for himself and his family to return to Cuba in three days. h

Pizarro, who in the meantime had been able to find his papers, was also arrested on a charge of harboring illegal aliens.

"Just because you look Latino you're guilty before you're proven innocent," Bonati said. "By the time you prove you're legal, they charge you with something else. We're not all illegal aliens."

INS District Director Kellogg Whittick said yesterday that when he heard of the arrests, he ordered the charges dropped. He said he subsequently told his agents that "in a situation like that, we could have used a little judgment."

"We have to be a little more cognizant about the way we are dealing with the community," he said. "To arrest somebody like that and bring then down here, you waste fuel, money, and you waste time."

Nonetheless, Whittick said, he believes his agents acted within the guidelines for the census period when they questioned Pizarro about his status.

"It is unreasonable," Whittick said, "to ask us to turn away from someone you might have reason to believe is an illegal alien. The best way to do it would have been to ask the man to come to the office sometime when he had the time to prove he was here legally."