One of the first police officers to arrive at the scene of the explosion watched the debris still floating through the damp air to the gorund like ash from a campfire. He looked at his watch and noted the time: 9:38 a.m. on Sept. 21, 1976.

Stately Sheridan Circle on Embassy Row was soon filled with investigators from the D.C. police, the FBI, the Executive Protective Service, which guards diplomats and embassies here, and the U.S. Treasury's Alcohol, Tobacco and Firearms unit, which investigates crimes involving explosives. As smoke continued to rise from the mangled Chevelle on the roadway of the circle, the investigators scurried to collect every possible bit of evidence from the debris around it.

They shook tiny particles down from tree leaves, drained a rain puddle and strained its contents, vacumed debris from the grass, and unceremoniously put ladders up against embassy walls to search rooftops. By the end of the gray, rainy day, thousands of tiny plastic bags had been filled with fragments that were taken to an FBI laboratory for analysis.

Painstaking work in the laboratory produced the first clues to the nature of the crime. The bomb had been strapped with precision above the I-beam of the Chevelle's frame so the driver would be hit with the full force of the blast. The high power of the expertly constructed explosive was clearly intended to kill. And the fact that it had apparently been detonated by remote control was further evidence of the sophistication of the crime.

The next clue was the identity of the target of the crime: Orlando Letelier, a former ambassador to the United States from the Chilean government of Marxist president Salvador Allende and an outspoken opponent in exile of the current chilean president, Gen. Augusto Pinochet, who overthrew Allende in 1973.

Letelier had been working here at the institute for Policy Studies, a liberal "think tank" that gave him a platform for speeches and writings crtical of Pinochet's government and the Chilean secret police, then known as DINA.

Two colleagues of Letelier's were in his Chevell when it was blown apart on Sheridan Circle. One of them, Ronni Moffett, who was riding along side Letelier in the front seat, died quickly of a severed artery. Her husband, Michael, who was in the back seat, was thrown clear of the car and survived.

Letelier's colleagues at IPS, which itself had been infiltrated and spied upon by informants for the FBI during the anti-Vietnam war years, immediately decided that DINA had murdered Letelier to shut him up. And, because of disclosures of CIA involvement against allende in Chile, they doubted the U.S. government's determination to find and bring Letelier's killers to justice if it meant embarrassing the Pinochet government. Their suspicions and anger grew when they discovered that investigators, checking out every possible motive, were asking whether anything in Letelier's and the Moffitts' private lives might be connected to the killing.

Assistant U.S. Attorney Eugene M. Propper of the major crimes division was sitting in the cafeteria in the federal courthouse here that September morning when the investigation of the Letelier killing began. Propper had just told friends at the table that two police officers with thom he had an appointment could not show up because "some ambassador" had been killed when one of Propper's supervisors came by and asked him to work on the Letelier case.

His supervisors warned him that such crimes are among the most difficult to solve and prosecute and that this one seemed particularly likely to involve unpleasant political pressures. But Propper, a nonestablishment prosecutor who had already begun thinking of leaving the U.S. attorney's office for private practice, agreed to take the case anyway.

A few blocks away in the Washington field office of the FBI, agent Carter Cornick had been waiting for his assignment here to take shape after his recent transfer from Pureto Rico, When the Letelier bombing occured, Cornick was selected by FBI agent-in-charge Nick F. Stames for the job because of Cornick's availability , his knowledge of Spanish, and his investigations of the bombings in Puerto Rico.

Cornick is an outgoing, man descended from several generations of Virginians who is frequently given to humor - trains not often expected in the dry sterotype of FBI agents.

Propper and Cornick, who had never met before, would spend the next 18 months on the unusually painstaking and often frustrating investigation that only last month produced arrests of a number of suspects and word that federal prosecutors here knew the details of the crime and had traced its origins to DINA and the Chilean government.

Unknown to the victim's friends and colleagues at the Institute for Policy Studies, the FBI investigation already had turnec toward Chile. Agents in the nation's Cuban exile communities, aware of a growing affinity between some very militant anti-Castro Cubans and the rightist Pinochet government in Chile, began checking Cuban informants.

The FBI and the Justice Department soon realized that this part of the investigation necessarily would involve intelligence information here and abroad, so they began laying delicate groundwork. Propper, Assistant Attorney General Stanley Pottinger and CIA Director George Bush met to determine to what extent that agency could help in the investigation. A carefully worded agreement placing the Letelier case in a "national security" status allowed that cooperation.

The investigation quickly forcused on the Cuban exile connection after Venezuelan authorities informed the United States that Cuban exile leader Orlando Bosch - who was being held in that country for the bombing of a Cuban commercial airliner in which 73 persons died - had implicated "the Novo brothers" in the Letelier case. By the end of October 1977, the Novos and other Cuban exiles were being brought before a federal grand jury here for questioning.

The Novo brothers - Ignacio Novo Sampol and Guillermo Novo Sampol - were known in the U.S. Cuban Community and to federal agents as leaders of the Cuban Nationalist Movement, a group that wants to regain its homeland without help from the United States.

IN 1964, they had fired a bazooka from across the East River toward the United Nations while Che Guevara was speaking there. They were arrested, but charges against them were dropped because they had not been properly informed of their rights.

Ignacio Novo also had been charged in the early 1970s in New Jersey with an explosives-related case, according to court records. And Guillermo Novo was on probation for a 1974 conviction in New Jersey in connection with a plot to blow up a Cuban ship and other property in Montreal.

The Cuban exile movement headed by the Novos, who had been living in this country for nearly two decades, was considered extreme even by some other militant anti-Castro Cubans. They eventually were "adopted" in a sense by the rightists in the Pinochet government in Chile, according to some sources, at a time when anti-Castro forces here felt betrayed by the U.S. government's effort at rapprochement with the Fidel Castro government.

The government's Cuban exile informants were reluctant to appear before grand juries as witnesses. Police officers and FBI agent who had used them for years were reluctant to disclose even to other central investigators the names of persons providing them with information in the Letelier case.

At the same time, in early 1977, U.S. investigators began checking the foreign travels of some of the persons whom they believed, based on information from the Cuban exile informants, to be centrally involved in the murder conspiracy.

They also were planning ways to put pressure on some of those persons so they might be forced to cooperate.

In early March 1977, while most law enforcement people here were occupied with 12 Hanafi Muslims barricaded in three Washington buildings, Propper, Cornick and Assistant U.S. Attorney E. Lawrence Barcella Jr. were in Venezuela meeting with that country's secret police.

There they learned that Guillermo Novo had traveled to Chile and Venezuela in late 1974, in apparent violation of his probation in the United State. They determined to use that information to try to put pressure on Guillermo Novo.

Then, in April 1977, they decided to grant immunity from prosecution to two Cuban exiles, Jose Dionisio Suarez Esquivel and Alvin Ross Diaz, if they would cooperate with investigators. Suarez refused to testify to the grand jury, and was sentenced to jail for an 11-month contempt of court sentence with the vow that he would never talk. At a press conference at the time, Ignacio Novo and Ross accused the government of harassing Cuban exiles.

In June 1977, prosecutors made their attempt to have Guillermo Novo's probation revoked. However, Novo failed to show up for that Trenton, N.J., hearing and became a fugitive for the next 11 months.

Then prosecutors learned in the late fall of 1977 that two persons whom they believed could have been DINA agents had come into the United States on official Chilean passports and met with Cuban exiles shortly before Letelier's murder.

Propper, Cornick and others decided to make one more attempt to shake loose information on the case in February, 1978. The term of the original grand jury in the case was expiring soon, and investigators felt it was time to go public with some of what they knew. The procedure took the form of "letters rogatory", a legal maneuver in which the court of one country asks the court of another country for help.

The United States used that approach to ask Chile to produce for questioning the two persons who had traveled here with the official Chilean passports and met with Cuban suspects in the Leterlier investigation. That highly irregular move left the clear implication that someone in the Chilean government was involved in the murder.

Within a week, photographs of the two men had been leaked to Washington Star reporter Jeremiah O'Leary and published here and in Santiago. Almost immediately, sources in Chile identified one of the men as an American-born DINA agent, Michael Vernon Townley.

Townley, 35, is a soft-spoken and intensely articulate man who has made Chile his home for the past 20 years after his father headed a large American automotive operation there.

As he is described by people who know him, Townley is an acknowledged electronic technician with the capability of building devices to detonate bombs by remote control. He had been active in commando raids against former President Allende. He had been charged with murder in a raid in which a night watchman was killed, but the charges were dropped when Pinochet came to power in late 1973 and Townley became a DINA agent.

Diplomatic sources reportedly made it clear without making specific threats that Washington was ready to sever relations with Chile if they allowed Townley to stay ther.Evidently for that reason, Chile turned Townley over to the United States.

Faced with possible prosecution for murder in the Letelier case and possible assassination himself because of his knowledge of numerous other international terrorist activities, Townley made a deal with prosecutors here. He would enter a guilty plea to a less serious charge and cooperate with the Letelier investigation. But he would not be asked to provide information on anything else.

While Townley was deciding to cooperate, FBI agents in Miami had also struck paydirt. In mid-ApriL, they had discovered - with the help of Miami area police - two other persons believed to be involved in the Letelier case: Guillermo Novo Sampol, who 11 months earlier had failed to show up at his probation hearing, and Alvin Ross Diaz, once granted immunity but now considered a suspect in the murder. They had been caught with cocaine and weapons, apparently in the midst of a plot to sell drugs and flee the country.

Once Townley's cooperation became known publicly, FBI and prosecutors worked swiftly to begin rounding up others whom they suspect participated in the bombing. They had hoped to catch Ignacio Novo, Jose Dionisio Suarez Esquivel (free from prison when the term of the first grand jury probing the Letelier case expired) and Virgilio Paz Romero, all in the same night. However, after a lengthy stakeout in northern New Jersey, only Ignacio Novo was apprehended.

In the hopes that Paz and Suarez will be caught and a trial could be held by autumn, prosecutors have begun putting together a case that focuses on a Chilean-ordered Letelier murder plot carried out by Cuban exiles.

Although details remain sketchy because of the government's desire to withhold the amount of its knowledge from unarrested suspects, the following outline of the government's case has emerged from various sources:

About a month before Letelier and Mofitt were killed, two Chilean secret police agents, Townley and Chilean Army Capt. Armando Fernandez Larios - were sent to the United States to find someone to kill Orlando Letelier. Townley met with Cubans in Miami with whom he had become acquainted when he lived there in the early 1970s, and with Cubans in northern New Jersey.

Over the next 10 days, the bomb was planted in Letelier's car and plans were made to blow it up with him in it. The date of the blast happened to coincide with a major 1865 event in Chilean military history, when a vice admiral named Juan Williams broke through a Spanish naval blockade off the coast of Chile and became a Chilean Naval hero. Juan Williams also was the fake name under which Townley had entered the United States.