A broad coalition of 30 peace, social service and welfare organizations took over the hot asphalt of Woodley Road opposite the Sheraton-Washington Hotel yesterday afternoon to denounce the Air Force Association's annual arms exhibit being held there.

The peaceful protest, which in some years has been marked by civil disobedience and arrests, this year took the form of what organizers called a peace and justice fair "to recognize good works being done in the community," said the Rev. Jack Woodard, rector of St. Stephen and the Incarnation Church.

The theme of the streetside fair, as well as the open air interdenominational worship service that concluded it, was that money should be spent on human needs rather than on weapons.

From rickety card tables lining the street, representatives of groups as diverse as the Women's Shelter Providers and the National Aids Vigil Commission handed out literature, sold message T-shirts and offered cups of cold water in the 98-degree heat.

Inside, at the hotel's air-conditioned exhibit area, workmen were jockeying crates of equipment into place for the exhibit, which opens tomorrow morning with a keynote address by Secretary of Defense Caspar Weinberger. The area was off-limits to outsiders.

"Most of it is mock-up" of the actual equipment or "sophisticated media presentations or things like a simulator you can sit in to see what it's like to actually fly a plane," said Robin Whittle, communications director for the Air Force Association.

Whittle said the four-day association convention is "informational and educational" and is expected to attract some 7,000 persons--business people, "GS-16s and above" and foreign embassy officials, as well as Air Force personnel.

Both Whittle and Ed Ulsamer, assistant executive director for policy information of the Air Force Association, pointed out that the 60 industries participating in the meeting do not actually sell equipment at the meeting here. They participate "to build good will and understanding," he said.

"The companies assume they will gain some benefit" from the exhibit, "but to call it a sale . . . . It is not a sale. They are bringing out the capabilities of their equipment to an audience that matters or could matter."

At the protest-worship service outside, attended by more than 200 persons, Dr. Ernest R. Gibson, executive director of the Washington Council of Churches, a cosponsor of the protest, condemned what he called the "exhibit of instruments of destruction and death."

Speaking of the downing last week of a Korean airliner by the Soviet Union, Gibson charged that "underlying that was the war mentality that caused that awful tragedy."

The Rev. Jim Wallis of the Sojourners, a religious community that also cosponsored the protest, said that in the past year many unarmed people in Central America, the Middle East and South Africa "have been killed by weapons that were on display here last year."

According to the Bible, Wallis said, "The health of a society or a nation can be judged by the state of the poor." By that criterion, he said, "The U.S. is an ailing society. This society is sicker this year than it was last year."