The Environmental Protection Agency yesterday agreed to spend more than $7 million cleaning up the Love Canal chemical dump to make it possible for homes evacuated two years ago to be resold and inhabited if local officials decide it is safe.

Many of the evacuated families, however, said they would never move back because the toxic chemicals dumped in the abandoned canal more than 30 years ago had hurt their health.

EPA agreed to boost the Superfund grant from the $4 million originally earmarked for the cleanup after deciding areas around the canal would be safe for habitation if some work was done. The money will pay for an expansion of the drainage system and cap on the canal and some feasibility studies.

Richard Morris, executive director of the Love Canal Area Revitalization Agency, said yesterday, however, that it would be several weeks before the agency would decide whether to sell the homes. The agency must first review a new study released by EPA on Wednesday which concluded that the 400 homes beyond the immediate ring of contamination were as safe to live in as the other areas in Niagara Falls and the United States that were used as control groups.

Hooker Chemical and Plastics Corp. used the abandoned canal from 1942 to 1953 as a dump site for 21,800 tons of chemical waste. EPA said 237 homes immediately surrounding the canal were too contaminated to be used, but that the 400 other nearby homes were "habitable."

Bill and Phyllis Stevenson said the EPA findings put to rest their concerns. The Stevensons were one of the few families who decided not to move when President Carter declared a state of emergency in 1980. Out of 60 homes on their street, only one other house is occupied. The Stevensons stayed because Bill was near retirement and they had lived there for years.

"I'm glad it's over," Bill Stevenson said. "I believe these people. I really do. I don't think they'd lie to us."

But Lynn Tolli, a 35-year-old housewife with three children, called the report "a farce. I think our government gave us the biggest runaround you'd ever want to see. I want them to be honest when they're talking about my children and my husband and myself."

For 13 years, the Tollis lived in the "outer ring," the area EPA said was safe enough to live in. But they left in 1980 and don't plan to move back. "People who live there are crazy. I think they're nuts," she said.

While living near Love Canal, she and her two sons developed epilepsy, her husband and one of her sons developed asthma, and that son also developed jaundice and had to live with his grandmother for nine months. "He was 9-years-old then; he obviously was not an alcoholic," she yelled at EPA officials during a community meeting.

"And then there's my daughter," Tolli said. "She just recently turned 16, yet she has had a cyst on her ovary and problems with her fallopian tubes." And Tolli developed cancer and had to have a hysterectomy. "I was only 26," she said.