The District of Columbia Court of Appeals ruled yesterday that city officials acted properly two years ago when they refused to hold a referendum on construction of the downtown convention center sought by opponents of the project.

The immediate effect of the court's ruling is to allow continued construction of the $98.7 million complex on a three-block area adjoining Mount Vernon Square. It is scheduled for completion next year.

The court's decision was accompanied by opinions outlining a sharp debate within the court on the circumstances under which citizens could use the initiative process.

Five judges upheld the reasoning of the D.C. Board of Elections and Ethics that it would have been improper to have a referendum on the center after the City Council and the mayor had approved the project and Congress had voted funds for it.

The initiative would "stop the expenditure of appropriated funds, it is beyond the scope of the initiative right. It cannot reach the ballot," wrote Judge John M. Ferren in one of two opinions written for the prevailing side.

However, the four dissenting judges countered that the court's more liberal members, who opposed the referendum, were sacrificing the " Home Rule Charter-given right" of D.C. citizens to vote by initiative, in order to bolster the power of the mayor and the City Council.

"I do not subscribe to the sophomoric view that whenever the prestige of the new home rule government is perceived to be at stake this court should abdicate its rightful judicial function and somehow find a way to support city hall -- no matter how far-fetched the reasoning," wrote Judge George R. Gallagher, who helped decide the case but has since retired.

That verbal clash of viewpoints posed in sharp ideological terms a split that has festered on the city's court and may again be raised when the court soon decides whether to place on the Nov. 3 ballot another controversial initiative question -- a proposal to allow city parents tax credits of up to $1,200 per child for educational costs at public and private schools.

In an extraordinary move that appeared to point toward the upcoming decision on the tax credit case, the dissenters made what they termed a "dire prediction" that the court would try to "deny future attempts to exercise the voting initiative franchise on proposals considered 'unpopular' in government circles."

Mayor Marion Barry, City Council Chairman Arrington Dixon, Schools Superintendent Floretta D. McKenzie and all 24 members of the school board and the City Council are opposed to the tax credit initiative.

A three-judge panel ruled last month that the question should be placed on the November ballot, but a majority of the full court's nine judges temporarily suspended that decision and voted to have the full court hear the case next week and make a final determination.

The five who voted to rehear the case are said to be the same five who prevailed in the convention center decison -- Chief Judge Theodore R. Newman Jr., and Judges Ferren, Julia Cooper Mack, Catherine B. Kelly and William C. Pryor.

While there were five judges in yesterday's ruling who agreed to keep the convention center question off the ballot, there was no majority opinion that commanded the necessary five votes. That means the ruling may not carry the weight of a precedent-setting decision.

Seven of the judges did agree on several important questions that helped clarify the complex fiscal relationships that are unique to the District of Columbia government and its relationship to Congress and its citizens.

Judge Ferren, joined by Mack and Kelly, agreed with the four dissenting judges that the City Council could have in effect passed legislation that would have rescinded the convention center funding. Judges Newman and Pryor, as part of an earlier three-judge opinion and again yesterday, said that neither the council nor the citizens could do that.

Yesterday's decision was welcomed by officials at the convention, where two dozen trade shows and conventions already have been booked through 1989.

"We couldn't be more delighted than we are that this last legal obstacle has been removed," center spokesman Alan F. Grip said. "Obviously the building is way up out of the ground, and it's moving on schedule."

Jack Phelan, chairman of the Convention Center Referendum Committee, which sought the referendum, described the court's ruling as an unfortunate one for city voters and taxpayers.

"The real importance of the Court's decision has to do with the voting rights of D.C. citizens and the efforts that Mayor (Marion) Barry, Council Chairman (Arrington) Dixon and the special interest groups went to to prevent the taxpayers from deciding if they should pay for the center," Phelan said.

Phelan said Barry opposed a referendum on the convention center because he feared the voters would turn it down.

"I guess the voters will have to wait until (the city's Democratic primary election) next September to decide if the mayor's handling of the city's financial affairs has been satisfactory," he said.

City Council member Betty Ann Kane (D-At Large), another proponent of a referendum, said she viewed the ruling as a "partial victory" because the court affirmed the council's right to reconsider or cancel a major building project it approved, even after Congress has appropriated funds for it.

"That's a very important home rule right," she said. "The mayor argued that, just as people don't have the right to stop a capital project once it's started, neither does the council."

In a statement released through a spokesman, Mayor Barry said he was pleased with the ruling because "the center is a critical element in my economic development plan and my overall comprehensive effort to create new jobs, expand tourism, increase the number of visitors to the District, and to revitalize the downtown area."

Barry said that the center and related development would spawn at least 4,000 new jobs and generate annual revenues of over $50 million.

The strongest criticism of the decision came from the four dissenting judges -- Gallagher, Stanley S. Harris (who is expected to be nominated soon as U.S. attorney for the District of Columbia), Frank Q. Nebeker and John W. Kern III.

"If the people of this city think that just because their Charter gives them the right to vote by initiative on legislation properly proposed by the citizenry this right will be enforced by this court, they will now know better," Gallagher wrote. "In a touch of irony, the majority today votes for a voteless District of Columbia -- on this major question of public policy."