The Arlington School Board, threatened with a lawsuit, agreed yesterday to readmit to county schools handicapped District of Columbia children living in county foster homes after being told that a new state law, expected to go into effect in July, could require their readmission.

The decision to re-enroll immediately the seven D.C. children who were dropped from the county schools in December came after Board Chairman Gail Nuckols notified the other four board members of the existence of the law, enacted by the General Assembly this month and awaiting the signature of Gov. Charles S. Robb.

"It's really important for everyone to realize we're not trying to escape any responsibility we have, and we're certainly not trying to cut off services to children," Nuckols said in a statement. "It certainly impacts our special education program if we have District residents put in our schools."

As a result of the board's decision, Environments for Human Services (EHS), the Virginia-based contractor that runs the foster homes, agreed to drop plans to file suit against the county in federal court yesterday. The Virginia attorney general's office had been pressing Arlington officials to reverse their decision to drop the children from school, and sources said the state was prepared to file a brief in the lawsuit in support of the D.C. children.

Donna Wulkan, attorney for EHS, said, "what we were interested in was educating the children and not fighting with Arlington. In terms of the resolution, we got everything we wanted. The kids have been vindicated."

The School Board was informed last fall of the decision to oust the D.C. students, which was made by the school administrative staff, but never voted on it.

The staff cited an existing state law that gives local school systems the right to decide which out-of-jurisdiction students they will enroll in their costly special education programs for handicapped students. The existing law does not include foster homes in its definition of legal residency.

In an Oct. 11 letter to EHS, Joseph G. Guter, the schools' budget director, informed EHS that the enrollment of handicapped D.C. students had created an "administrative burden."

The D.C. government has a contract with EHS, which operates five of its 20 foster homes in Arlington, to house delinquent and neglected children. The city has paid Arlington up to $9,000 a year per child in tuition for special education in addition to the regular tuition of $3,000 per child.

Guter also wrote that the D.C. children would be taking up a limited number of slots in special education programs that should be reserved for Arlington children.

The recently enacted state law was described yesterday by Assistant Arlington County Attorney Cynthea Perry as changing the legal definition of residency so that out-of-jurisdiction children living in foster homes in the county would be entitled to an education there. Although the law would not go into effect until July, Perry said, "It is clearly a legislative signal" of what should be done.

Audrey Rowe, the District's social services commissioner, said the students are in Arlington's special education program because the city does not have "a sufficient number of programs which provide these kids the services they need in the 'least restrictive environment.' " The phrase is from the federal law requiring "free and appropriate education" for handicapped children in the environment best suited to their needs.

Although there have been reports that some of the D.C. children have been disruptive in the schools, Rowe said her agency has never had any complaints about the children, who are "the more difficult to place kids."

Bern Anderson, clinical director for EHS, said that moments after Arlington officials decided to abandon the policy, an EHS staff worker escorted an emotionally disturbed 17-year-old D.C. boy to Arlington's Wakefield High School, where he was accepted for enrollment.