In a retreat in its budgetary strategy, the Reagan administration has decided to continue funding bilingual education as a separate categorical program rather than include it in a proposed education block grant.

The decision, a peacemaking gesture by the administration toward the Hispanic community, is likely to bring protests from other constituencies whose pet programs are being consolidated into block grants by the president.

Education Secretary Terrel H. Bell gave the news to the Congressional Hispanic Caucus at a Feb. 25 luncheon. The decision is expected to be reflected in the Reagan budget that will be unveiled March 10.

"This is the first positive step the administration has taken," said Rep. Robert Garcia (D-N.Y.), caucus chairman.

The administration outraged Hispanic groups on Feb. 2 when Bell announced it was scrapping controversial regulations that would have required students who do not speak English to be taught in their native language. Although the regulations had been attacked by educators throughout the country, Bell's action drew a storm of protest, expecially from Hispanic organizations.

The response apparently stunned Bell and others in the new administration, and contributed to the decision to maintain bilingual education as a separate program. Bell specifically cited the reaction to elimination of the bilingual regulations in his Feb. 25 luncheon with the Hispanic caucus.

"If he said it once, he said he three times," Garcia said.

According to those who attended the luncheon, Bell said he twice spoke to budget director David A. Stockman about having bilingual education removed from the block grant for elementary and secondary education. In President Reagan's Feb. 18 budget message, bilingual education was identified as one of the programs that would be included in the block grant. Stockman eventually agreed to Bell's request.

"I got the impression that if Stockman hadn't agreed to it, he [Bell] would have gone to the president the next day," Garcia said.

In additional to the political peace it may buy, the decision to maintain a separate bilingual program is based on the rationale the non-English-speaking children are not evenly distributed around the country.

"They tend to be in pockets," said Elam Hertzler, Bell's chief of staff. "We feel we should have a more targeted program."

Congressional sources said they expected that the bilingual program budget would be cut 20 to 25 percent from last year's level of $167 million, but Hispanic spokesmen expressed satisfaction nonetheless.

"That's still 100 percent beter than lumping it into the block grant," said Arnold Torres of the Leagues of United Latin American Citizens.

One Monday, Reagan harshly attacked bilingual education in a speech before the National League of Cities, saying it was "absolutely wrong and against American concepts to have a bilingual education program that is now openly, admittedly dedicated to preserving their [students'] native language and never geting them adequate in English so they can go out into the job market and participate."

Hispanic groups responded that the president did not understand what the program was about.