The Pennsylvania Avenue Development Corp. deferred a decision yesterday on whether to acquire an office building for Western Development Corp. and include the site in the $150 million Market Square project.

The delay, agreed to at a board meeting, gives the PADC an additional 30 days to decide whether to buy or condemn the building, as Western has requested, or to leave it alone, as the owners have requested.

Robert McCally, the PADC's lawyer, told the board that a decision to take the building would set a precedent for the agency.

The dispute erupted after the PADC held a competition two years ago for the development of Market Square, with the understanding that the 23-year-old, 10-story Federal Triangle Building at Ninth and D streets NW, on a corner of Market Square, would remain untouched.

After Western won the competition, it attempted to buy the building. The building's owners have refused to sell, saying that even the latest and highest offer -- $9.6 million -- is far below the fair market price.

Western then asked the PADC to exercise its power of eminent domain, by which the agency can take over the building.

Western Chairman Herbert S. Miller told the board yesterday that Market Square would be greatly improved by the acquisition. William Coleman, Western's counsel, said it is legal for the PADC to exercise eminent domain.

George Hartman, Market Square's architect, choreographed the movement of several maps, blueprints, building models and large drawings at the meeting. To emphasize Hartman's point that the project would be more aesthetically appealing without the Federal Triangle Building, a Western staff member peeled a rendering of the building away from a large drawing to reveal the design that Western wants.

Henry Hubschman, the attorney for the partnership of local business people that owns the contested building, argued that Western's presentation was based solely on design issues and gave no legal response to the 30-page memo that his firm had filed with the PADC opposing the condemnation.

"We submit that approval of Western's application would be unfair, unjust, plain wrong and flatly illegal," Hubschman said.

After Hubschman made his comments, Henry A. Berliner, the chairman of the PADC, protested an allegation made in the partnership's memo that there had been collusion between the agency's staff and Western.

"If you have evidence of collusion," Berliner said, "you should take it to the U.S. attorney's office, and I'll go with you." He then excused Hubschman from the meeting.

George White, architect of the Capitol and a nonvoting member of the PADC, said, "It would be immoral for this board to use its power of eminent domain." He added, "I thought someone had read my mind when I read" the owner's documents.