The Reagan administration revealed for the first time yesterday it would drop the government's massive antitrust case against American Telephone & Telegraph Co. if Congress approves an amended communications bill worked out with the company .

U.S. District Court Judge Harold Greene immediately denied a request by William Baxter, assistant attorney general for antitrust, for an 11-month delay in the current trial to give Congress time to act on the legislation. The administration said no decision has been made regarding the government's next action although a move to dismiss the case was possible.

Baxter told Greene and lawyers of AT&T that the administration ahs concluded that there is no realistic possibility of enacting telecommunications legislation, already passed by the Senate Commerce Committee, unless the case is put on ice. Greene later released a transcript of the meeting.

"If the legislation passes with the amendments that have been worked out, it would be the administration's intention to discontinue the litigation," Baxter told Greene. He said the amendments had been "checked" with AT&T.

Earlier this year Baxter pledged to "litigate to the eyeballs" the case, enthusiaastically endorsing the Justice Department's efforts to break up AT&T. The government filed its antitrust suit in 1974.

The Baxter moves caught Justice Department attorneys working on the case by surprise. "He didn't even call us when he got out of the meeting with Greene," said one. "That's pretty sleazy. We're completely in the dark and we have 900 million things to do" when the trial of the case is scheduled to continue on Monday.

Sources said the decision stems from a meeting of the White House cabinet council on commerce Tuesday, at which the Commerce Department strongly pushed for the Baxter action.

In a statement later released by the Justice Department, Baxter said the administration's amendment would require AT&T "to meet a competitive market test" for selling Western Electric Co. equipment before it could be sold at AT&T's 23 local telephone companies. "This amendment we believe, will provide an effective check against the risk of cross subsidization of AT&T activities," Baxter said. Another source called the amendment "self-regulatory."

A Justice Department spokesman also said the administration plans to support an amendment strengthening the rights of AT&T competitors to "equal treatment" in connecting with local telephone networks.

Yesterday's events also caught communications industry sources and AT&T competitors by surprise. Sen. Strom Thurmond (R-S.C.) chairman of the Senate Judiciary Committee, said Baxter told him Tuesday of the plan to request a delay in the suit. Thurmond announced he would hold hearings on the move to seek the delay next week.

Rep. Timothy E. Wirth (D-Colo.), chairman of a House telecommunications subcommittee, said Baxter is "wrong" and the argument is "specious."

"He is fully aware that common carrier legislation is the top priority of my subcommittee," Wirth said.

"Everyone knows that Western Electric is no longer the problem in this industry," said Thomas Casey, former deputy director of the Federal Communications Commission's common carrier bureau and not a private attorney. "But it certainly is a surprise that this is how they plan to litigate the case to the eyeballs."

Samuel Simon, executive director of the National Citizens Committee for Broadcasting said: "I think Bell has run over this administration. The evidence is clear."

An AT&T spokesman, however, said the company was disappointed with Green's decision, but said it was "pleased that the government has essentially abandoned the extreme relief it had sought from the court."

In his order, Greene said it would be inappropriate to suspend the lawsuit simply because such suspension may have a political impact in other forums. Last month, the government finished presenting massive evidence in the case, which the government alleges proves historic monopolistic behavior by AT&T, the largest company in the world.

Last year a similar bill was passed by the House Commerce Committee, only to be blocked by the Judiciary Committee because of concerns about the antitrust suit