The Arlington County Board yesterday rejected a proposal by a Libyan group to convert a church to a private school for children of diplomats after residents protested that a Libyan-owned facilty could be the target of a terrorits attack.

The boards unanimous decision to oppose the plan by the Islamic Call Society to buy and convert the Calvary Church of the Nazarene to a school and mosque followed an emotional two-hour public hearing attended by more than 100 residents who live near the church, located at 5900 Wilson Blvd.

"This would be a sword of Damocles hanging over our head," said Al Donner, one of nearly 20 residents who testified against the school. "It would act as a lightning rod to attract violence into our community."

Other residents objected that the school would be run by a government that is hostile to the United States and that has a long history of terrorist activities. "The Libyans are avid supporters of the Iranians who are holding 52 of our citizens hostage," said Fred W. Mowat, president of the Boulevard Manor Civic Assn., the neighborhood that borders the church.

The Islamic Society, which currently operates a school for 100 children on Massachusetts Ave. NW in the District, had contracted to buy the property for a reported $1.5 million. The church's members want to relocate to Fairfax County, where a majority of them now live. Final sale of the church was contingent on the board's approval of use of the building for a school. "I'm amazed that they haven't accused the country of Libya with killing our late beloved president John F. Kennedy," said a visibly angry Richard C. Shadyac, a registered agent for the Libyan government and the group's attorney who was loudly booed when he deplored "the mass hysteria reflected her today."

Shadyac, who later said he has received several anoymous telephone threats to bomb his home, reminded the boad that Americans currently operate a school in Tripoli, Libya's capital city. "All the Libyans are asking for is that their children be given equal access," said Shadyac.

Neither Shadyac's arguments nor recommendations in favor of the proposal by the county planning commission and professional staff swayed board members. They quickly voted to kill the proposal on the grounds that a school could be hazardous to the safety of area residents.

After the meeting Shadyac said he has helped negotiate the purchase of four Libyan schools in other parts of the country where "there have been no problems." Shadyac declined to say where those schools are located.

The red brick church located near Seven Corners has been a source of controversy before. Last year, after overwhelming neighborhood opposition, Arlington officials killed a proposal by a group of ex-convicts headed by convicted Watergate felon Charles Colson. Colson was seeking to buy the church for use as the national headquarters for the Prison Fellowship organization he heads. That group recently opened its headquarters in Fairfax County.