Iraq declared yesterday that it will crease hostilities with Iran for four days beginning Sunday as a step toward a permanent cease-fire. Iran rejected the plan.

After announcing the unilateral cease-fire plan at the United Nations, the Iraqis later disclosed to a meeting of Islamic countries several conditions that Iran then declared unacceptable.

Fierce fighting was reported yesterday between Iranian and Iraqi forces inside two towns of iran's oil heartland. Iran admitted that its forces fought street battles with Iraqi soldiers in the port of Khorramshahr on the disputed Shatt-al-Arab but claimed the invaders were later driven three miles back from the city.

Iraqi in describing the proposed cease-fire, emphasized that "if military action is taken against us, we will return the fire." The spokesman said the purpose of the move was to give time for further consultations by the Islamic peace mission under Pakistani President Mohammed Zia ul-Haq. [Details on Page A25.]

Meanwhile, some U.S. officials closely monitoring the war have begun hedging on their earlier prediction that it would probably wind down within 10 days to two weeks and now fear it may go on for an extended period with possibly dramatic consequences both to the two countries and the entire gulf region. [Details on Page A22].

This assessment seemed to take into account partly Iran's apparent determination to fight until the Iraqis are driven from its territory and partly Iraqi inability to score a quick, decisive victory in its efforts to secure control of four key Iranian towns in the face of stiff Iranian resistance.

U.S. officials said the Iraqi failure was all the more significant given the state of near-total disarray in the Iranian armed forces, including their inability even to bring up reinforcements to front-line positions since the war began 10 days ago.

Simultaneously, Western correspondents covering the war from the Iraqi capital of Baghadad are beginning to speak of the Iraqi troops becoming "bogged down" although they are clearly in a winning position.sition.

Despite numberous Iranian difficulties, Iran yesteday for the first time reported a success in its struggle to turn back the invading Iraqi troops, announcing it had recaptured the town of Mehran in the central sector of the 300-mile front and said residents there welcomed Iranian forces "which lifted the siege by Iraqi forces." There was no confirmation of this claim, however.

In reports of other fighting the Iranian National Oil Co. radio station in Abadam reported battles took place yesterday morning near the railway station, slaughterhouse and the port authority offices in Khorramshahr. It claimed 15 Iraqis were killed or wounded, 39 captured and six tanks taken during the fighting, adding that "our force dealt heavy blows to the enemy and drove him back some five kilometers (three miles)."

It, nonetheless, called on the city's residents "to prepare trenches in the streets, make Molotov cocktails and any other destructive means and prepare for a fight against the enemies of God and the masses."

The broadcast claimed Iranian forces were again "in full control" of the city but there was no independent confirmation of this.

An Iranian military communique also claimed Iranian troops destroyed 21 Iraqi tanks and shot down two more Migs in the southern sector of the battlefront but did not indicate where.

Iraqi officers told Western reporters they took on a tour of the war front's central sector that Iraqi troops had pushed into parts of Ahwaz, thee capital of Iran's Khuzestan Province, the country's oil center. The officers predicted the fall of Ahwaz by Thursday, The Associated Press reported.

Tuesday, Western correspondents who were expecting to be taken by the Iraqis to the provincial capital reported they got no farther than 14 miles south of Ahwaz before being stopped. Iraqi forces yesterday admitted fighting was going on south of the city but insisted Iraqi forces were also inside Ahwaz.

Seventy miles to the north, Iraqi forces were still battling to capture Dezful, which would effectively cut of the province's communication lines to Tehran. The Iraqis claim to have captured all approaches to the city, 90 miles north of Khorramshahr. The Iraqis reported 10 Iranian tanks destroyed to the loss of seven of their own in the fighting there yesterday.

The fourth Iranian city under Iraqi siege is Abadan, the Shatt-al-Arab port where Iran's giant refinery, one of the world's largest, is located. The city was again shelled by Iraqi artillery yesterday but Iran's Revolutionary Guards, the same force putting up a fierce resistance in Khorramshahr, have apparently held off the Iraqi offensive there, too.

Iraqi's apparent initial strategy in the war has been to seize control of the four Khuzestan cities it has under siege and then use the territory it has taken as a buffer zone for the vital Shatti-al-Arab estuary, which is thought to be the core objective of the Iraqis. However, there has been considerable speculation it may also intend, if and when it captures the cities, to establish some kind of autonomous government in the province, which is heavily populated by ethnic Arabs.

In other military action yesterday, Iraq said it shot down two more Iranian jets, bringing the total announced Iranian losses to around 200. Iraqi war communiques also said the Iranians raided a number of towns inside Iraq including Ahra and Um Kasra. Kirkuk, which has been bombed before during the conflict, was struck once again.

Smoke was still visible over the Iraqi capital of Baghdad yesterday, and the Iraqi news agency said it was from the Dora Hilla natural gas line juncture feeding into the power plant attacked Tuesday by Iranian jets.

The news agency also announced that three Western reporters, from the French news agency Agence France-Presse, Madrid's Diario 16, and the Amsterdam newspaper De Telegraaf, were being expelled for describing alleged damage to Iraq's nuclear research center without having verified this for themselves. They were believed to be the first correspondents covering the war from Iraq to have been deported.

An element of mystery was introduced yesterday into the the reported Iranian raid on the $300-million, French-built Iraqi nuclear center when Tehran radio said that reports of Iranian raids on the installation "are not confirmed by the Iranian armed forces join staff."

It was not clear whether this wax deliberate Iranian disinformation to raise suspicion in Iraqi minds that a third country might have attempted to knock out the nuclear plant, which is crucial to Iraq's eforts to become a nuclear power.

Meanwhile, the first concrete evidence that Iran is beginning to hurt for spare parts for its American-supplied weapons surfaced yesterday in Athens where an Iranian envoy was reported to have arrived seeking such equipment.

He was told by the Defense Ministry that Greece had no surplus spare parts to give Iran, Reuter news agency reported, quoting authoritative Greek sources.