Keith Kelly, a Kansas City, Mo., development executive, has been named to oversee the federal government's multimillion dollar effort to rehabilitate Washington's decaying and barricaded railroad terminal at Union Station.

Kelly, 59, promised yesterday to restore the station to "the way it was in its heyday"--a bustling, elegant structure filled with restaurants and shops. "I think it can be done. It better be done," he said.

Kelly was named executive director-president of the Union Station Redevelopment Corporation, a nonprofit organization set up to oversee the restoration work.

Since 1967, Kelly has been vice president for development of Crown Center Redevelopment Corp., a subsidiary of Hallmark Cards Inc. that has developed a $400 million, 85-acre complex of hotels, offices, shops and homes near the downtown area of Kansas City.

At Crown Center, Kelly was the managing director for construction of a Hyatt Regency Hotel in which two elevated walkways collapsed in July 1981, killing 113 persons. The disaster has been attributed to defects in the walkways' design.

Kelly said yesterday that Crown Center officials were not at fault in the incident because they had relied on subcontractors to prepare and review the designs. The subcontractors had assured them that the plans for the walkways were safe, he said. "We had nobody on our staff that could review them," Kelly added.

Bill Johnson, Hallmark's corporate communications director, gave a similar account yesterday of Kelly's role in the project and added that it would be "very unfair to hang that tragedy on Kelly." He noted that Kelly is a lawyer and an administrator, not an engineer.

John H. Riley, administrator-designate of the Federal Railroad Administration, issued a statement last night saying that officials had thoroughly investigated the Hyatt incident and had found that Kelly "had neither the responsibility nor the capability of reviewing the design work." Riley noted that Kelly was not named as a party in any lawsuit stemming from the incident and he praised Kelly as a "highly qualified professional."

Edward Pfrang, executive director of the American Society of Civil Engineers, who investigated the walkways' collapse for the National Bureau of Standards, yesterday attributed the accident to two factors--a "very substantial error" in designing the walkways and subsequent change in plans that doubled the amount of weight the walkways had to support.

The bureau's investigation did not seek to determine who was at fault in designing the walkway or making the later design changes. Pfrang noted, however, that several contractors and subcontractors appeared to have taken part in designing, altering and reviewing the plans for the walkways.

Kelly was chosen for the Union Station job Tuesday by the redevelopment corporation's board of directors, which includes representatives from Amtrak, the District government and the Federal City Council and is chaired by U.S. Secretary of Transportation Elizabeth Hanford Dole. Kelly's appointment was announced by the Transportation Department yesterday.

Union Station, which was built in 1907, is closed as a result of leaks in its roof and other deterioration. Signs posted in front of its main entrance say: "This Area Closed for Safety Reasons." Federal officials say they hope to reopen the building in five years.

The stately edifice was ordered closed in February 1981 when the leaks caused plaster to fall from its ceiling, posing a safety hazard. With commitments of more than $100 million in federal money, the structure had been converted into a National Visitor Center with a a large slide-show pit in its main waiting room and a still-uncompleted parking garage behind the building.

S. Mark Lindsey, a U.S. Transportation Department lawyer, has recently observed the building's interior. "It still looks like one hell of a mess and will for some time yet," he said yesterday. "The building has been so wet that there are mushrooms growing in places."

Kelly's appointment was described by federal officials yesterday as a milestone in the government's new effort to convert the structure into a train terminal once again. "We looked for someone who is a good program manager," said John H. Riley, administrator-designate of the Federal Railroad Administration, noting that 125 candidates for the job were screened before Kelly's selection.

"I first came through that station in 1942," Kelly recalled in an interview. The facade, he said, was an "architectural triumph." And he added, "The inside was also beautiful and very, very busy."

The nonprofit corporation, relying on $70 million supplied by Amtrak, plans to hire an architectural firm, private developer and construction contractors to restore the building. It is scheduled to seek bids soon on about $2 million in short-term electrical and structural repairs.

In addition, the Interior Department is currently carrying out $7.4 million in repairs of the roof, skylights and drainage system. The District is seeking bids for completion of the parking garage, expected to cost up to $40 million. A study is also under way of proposals to build helicopter landing pads on top of the garage.