The federal government cleared the way yesterday for development of a $656 million federal office building and international trade pavilion near the White House, two months after officials threatened to stop the project because of ballooning costs.

The General Services Administration signed a contract enabling development to proceed after government officials pared $82 million worth of architectural flourishes and other costs from the project, which would become the second-largest federal building after the Pentagon.

"The final obstacle in terms of the project moving forward has been removed," GSA Administrator Richard G. Austin said.

The development, which is to fill the 11-acre parking lot next to the District Building on the Federal Triangle, has been viewed as the culmination of efforts to revitalize Pennsylvania Avenue NW since the 1960s. Plans call for an "international cultural and trade center" -- consisting of exhibition halls, theaters, shops and foreign missions -- along with U.S. government offices, which are expected to house the U.S. Information Agency and parts of the Justice Department.

The contract signed yesterday provides for a private group led by New York developer William Zeckendorf to build the complex and lease it to the government for 35 years, at the end of which the government will own the building. One of the losing bidders has filed suit to overturn the award of the contract to Zeckendorf's group, alleging that the selection process was illegal, but the pending suit did not deter Austin.

The GSA rejected an earlier version of the contract with Zeckendorf in July, saying the international center, which would be run by an independent commission, appeared destined to lose millions of dollars and that the federal office space might be too expensive for the government.

The commission had estimated that 2 million people a year would pay $5 each to visit exhibitions at the international center. A consultant to the GSA, however, said the government should count on no revenue from exhibit admissions.

The 1987 law authorizing the project required the international center to make enough money to cover its share of the rent by its third year of operation.

Since July, in an effort to reduce overhead, international center officials have scaled down plans for two theaters and a reception hall. They commissioned a consultant's report of their own, which proposed a somewhat different business plan for the center and predicted that the center would make more than enough money to pay its rent by 1997, its third year.

GSA Administrator Austin said the projections "are all very speculative," but added that the margin of error was acceptable. To pave the way for yesterday's agreement, Sen. Daniel Patrick Moynihan (D-N.Y.) and Rep. Douglas H. Bosco (D-Calif.), who head congressional oversight panels, pledged to seek legislation that would compensate the GSA for any loss it might incur from the international center.

Bosco, who pronounced the project "listless and very near death" in July, said he was satisfied with the cuts of $82 million. Under the revised plan, the international center can more easily be converted to government offices if it does not succeed, Bosco said.

The cuts included substituting plaster for stone in some parts of the building, substituting aluminum trim for bronze trim and using ordinary doors instead of oversized doors that had been proposed for government offices.

The government also scrapped plans to spend $18 million to expand parking at suburban Metrorail stations. The suburban parking was intended to partly offset the burden the project could add to downtown parking garages with the influx of about 6,500 workers. The revised development plan calls for more parking to be included in the project..