ANNAPOLIS, DEC. 14 -- Under pressure from legislators and state workers, Maryland Gov. William Donald Schaefer today canceled 1,800 layoffs he insisted were unavoidable three days ago.

Appearing at a joint news conference with legislative leaders, Schaefer said the lawmakers had persuaded him to take a "one step at a time" approach to Maryland's estimated $423 million budget shortfall and to exhaust other money-saving remedies before firing employees.

The governor did not rule out layoffs if the economy continues to deteriorate.

Schaefer is allowed under state law to lay off state employees unilaterally, but many of his other budget-cutting proposals will require a General Assembly vote when it convenes in January.

In return for Schaefer's cancellation of the layoffs, Senate President Thomas V. Mike Miller Jr. (D-Prince George's) and House Speaker R. Clayton Mitchell Jr. (D-Kent) pledged support for the governor during the session and promised him flexibility as he seeks $200 million in reductions for the budget year that begins in July.

With the legislators' pledge in hand, Schaefer agreed to explore alternative budget cuts recommended by legislative leaders this week, including a one-day-per-month furlough of all state workers. He said he will choose final budget cuts from the legislature's list and from separate proposals submitted by his fiscal analysts.

"We now find that it is possible by melding the plan developed by the governor with the plan developed by the {legislative} leadership to contain the . . . shortfall without layoffs," Schaefer said in a statement after morning meetings with Miller and Mitchell.

The announcement came after a week of jockeying between Schaefer and lawmakers over how to cope with a downturn in the Maryland economy. Though less extensive than in some states -- Virgnia's two-year shortfall is approaching $2 billion -- Maryland's deficit is forcing hard choices for a governor who is used to a plentiful state treasury and a legislature that has fought to increase its influence over the $11.5 billion annual budget.

Initial reductions made after the November elections reduced the shortfall by about $175 million; the latest cuts, proposed by Schaefer earlier this month, would have saved about $26 million through layoffs, cut $33 million in state aid to counties, taken $75 million from a "rainy day" fund and trimmed spending on parkland by $40 million.

When legislators responded with their own list of cuts that avoided layoffs, Schaefer was emphatic that workers had to be fired, not only to balance the current budget but also to reduce further deficits projected for next year.

"I've been . . . dragged through the drain on this layoff," he said Wednesday. "If there were alternatives that I thought would work . . . I would have proposed it."

However, with legislators holding the power to accept or reject use of the parkland, rainy day and other funds, they were able to persuade Schaefer to refrain from layoffs, at least for now.

"We pointed out to him that we campaigned up and down the state without mentioning layoffs . . . and that perhaps it would be unfair to mention them at this time," Miller said. "No one in the legislature wants to bind the governor's hands . . . but we wanted to let him know our concerns."

Union leaders welcomed Schaefer's announcement, but said they will fight if the issue of layoffs resurfaces.

"This is a temporary victory," said William Bolander, executive director of the American Federation of State, County and Municipal Employees, Council 92. "We have to be prepared . . . for the possibility of another battle to come."

Schaefer also acknowledged yesterday that in state government, "we may have overextended ourselves" with new programs during the mid-1980s boom years, and that less essential programs now might have to be curtailed.

Last year, for example, Schaefer committed tens of millions of dollars to the acquisition of new parkland, a program he said would benefit middle-class voters whose tax dollars underwrite programs for the poor.