The unprecedented $65 million "public diplomacy" campaign being launched by the Reagan administration to promote its arms control and foreign policies to skeptical Europeans will be used in part to finance scholarships and "institutes for democracy" for western European politicians, trade unionists, academics and young people, administration officials said yesterday.

"It's more of a political initiative than a communications campaign," one official said in describing the program, which was created by an unannounced executive order signed by President Reagan last Friday.

Reagan and his aides are sensitive that the program will be seen as a propaganda effort similar to campaigns waged by the Soviet Union. Answering reporters' questions yesterday, the president said what the United States is doing is "not propaganda--it's public relations."

Reagan's executive order created a new inter-agency group, headed by national security affairs adviser William P. Clark. Within this is a "special planning" group headed by Peter Dailey, a media consultant who is U.S. ambassador to Ireland, which will focus exclusively on trying to do a better job of persuading Europeans to accept Reagan's "zero-option" arms control plan.

Administration officials said the Dailey group was created at the insistence of Secretary of State George P. Shultz, who told Reagan and Clark after returning from a European trip in December that the United States needed to do a better job of explaining its arms control proposals in Europe.

The inter-agency group, which has been months in the making, grew out of a bristling, anti-Soviet speech President Reagan gave to members of the British Parliament last June 8. He proposed a "crusade for freedom" that would actively challenge the Soviet Union and assist "democratic development" throughout the world. Soon after Reagan returned, administration officials said yesterday, Clark initiated discussions on the proposal.

"The objective I propose is quite simple to state: to foster the infrastructure of democracy--the system of a free press, unions, political parties, universities--which allows a people to choose their own way, develop their own culture, to reconcile their own differences through peaceful means," Reagan said in his London speech.

But administration officials said the actual projects to be produced by either the inter-agency or Dailey group, which held its first meeting Wednesday, remain vague.

Dailey, a personal friend of Clark and a media adviser to the Nixon, Ford and Reagan presidential campaigns, said Tuesday he was concerned principally with coordinating communications efforts.

The inter-agency group, announced officially yesterday by State Department spokesman John Hughes, will deal with four questions: international politics, information, broadcasting and public affairs. "We want to explain our policy, and we want also to explain the values and principles that underlie our policy," Hughes said.

All of the inter-agency group's efforts will be directed to Europe, except for the "public affairs" function. One spokesman said this group, co-chaired by National Security Council deputy director Robert C. McFarlane and White House communications director David R. Gergen, will attempt to coordinate the statements made on arms control issues in the United States.

The overall planning group includes, in addition to Clark and Shultz, Secretary of Defense Caspar W. Weinberger, Peter McPherson, administrator of the Agency for International Development, and Charles Z. Wick, director of the United States Information Agency.

One official said that the combined effort was aimed in part at making certain that Wick, a sometimes controversial figure who is close to the president, coordinated USIA activities with the State Department.

About $20 million from the USIA budget will be spent on the new program this fiscal year, according to the official. Its $65 million overall cost, he said, will be included in the fiscal 1984 budget that Reagan will submit to Congress later this month.