Federal housing officials, in an admittedly unusual decision, have agreed at the request of D.C. Mayor Marion Barry to reconsider their rejection of a $5.1 million grant for a proposed rehabilitation hospital on the site of the old Children's Hospital.

Barry wrote officials at the U.S. Department of Housing and Urban Development Friday on behalf of the project's developers. His letter came a few days after the developers and representatives of the city's Office of Business and Economic Development met with federal housing officials to urge reconsideration.

The hospital would be the first facility in the area devoted exclusively to rehabilitating physically handicapped people, and one of the largest such centers in the country. Barry wrote that the project is important to the city for both the services and the jobs it will provide.

The project's developers include builder Jeffrey Cohen, a longtime political supporter and personal friend of Barry, architect Theodore R. Mariani and attorney Samuel C. Jackson, a former assistant secretary of HUD.

The department's move to reconsider means only that federal officials will continue to review the project. A final decision will be made by June 30.

Don Dodge, HUD deputy assistant secretary for program management, said "it is not a frequent thing" for the department to reverse itself once a project has been dropped from competition in the popular Urban Development Action Grant program. But he added that it is also unusual for developers and city officials to complain about a rejection.

The proposed 240-bed hospital will cost an estimated $50 million. The federal funds would pay for demolishing some of the old Children's Hospital buildings, renovating others and building an underground parking garage, according to Robert Jeffers, the developers' attorney.

HUD officials wrote the mayor in late April that the application had been rejected partly because the developers had no firm financial commitments for the project.

However, Dodge said the developers told him last week they have received a tentative commitment from the Federal Housing Authority (FHA) to insure the mortgage on the project. With the federal government guaranteeing repayment of the mortgage, the developer would find it easier to borrow the needed funds from private lenders.

"They made a compelling argument that they would stitch the thing together," said Dodge. After the mayor wrote citing the project's importance and stressing that "it would come together," the federal officials resurrected it, Dodge said.