President Reagan illuminated the red, white and blue lights of the National Christmas Tree at the Ellipse yesterday, opening the 1981 Christmas Pageant of Peace by pushing a remote button in the East Room of the White House while surrounded by grinning children.

Reagan's decision to stay inside marked the first time in several years that a president has not joined the crowd which traditionally gathers around the large Christmas tree outdoors to celebrate.

White House officials said Reagan remained indoors for security reasons, a decision made, in part, because of worries about the possibility of Libyan hit squads.

This is the third time international turmoil has been an uninvited guest at the lighting ceremony which began in 1923 and later became a symbol of America's stated commitment to peace on earth. In 1979 and 1980, only the top ornament on the tree was lighted before Christmas Day because of the Americans being held hostage in Iran.

In his three-minute televised address to the nation, which crackled over loud-speakers at the Ellipse, Reagan only briefly alluded to national and international problems. Instead, he spoke about traditions surrounding the tree lighting, children (including his own grandchild) and how world peace could be achieved if people only treated each other as they would like others to treat them.

The crowd of several thousands surrounding the 32-foot living blue spruce national tree did not seem too disappointed that the president and first lady were indoors. "I don't blame him for staying inside," said Patrick O'Connor of Falls Church. "I'm disappointed the world is the way it is, not because he isn't out here."

At one point during the ceremony several supporters of the Equal Rights Amendment waved banners. Other protesters included a city employe, Joann Wheeler, who said Reagan's budget cuts were turning Christmas into a nightmare for the poor.

Three-year-old John Austin Turner, perched with his teddy bear upon his father's shoulders, couldn't have cared less, however, about Reagan's not attending or about the protesters. The small boy pointed toward the jolly red-suited man on stage and clapped his hands throughout the ceremony. As long as Santa was there, explained his father, Alvin Turner of Seat Pleasant, it would be a memorable tree lighting.