Time magazine announced today that it would "strenuously object" to limitations placed on its review of secret Israeli documents that Time said would support its defense in a $50 million libel suit filed by former Israeli defense minister Ariel Sharon.

An examination in Jerusalem Sunday of key documents related to Sharon's role in the 1982 Beirut massacre failed to uncover any evidence to support the magazine's case.

"We at Time Inc. believe we have been denied potentially crucial information," said the statement read by Mike Luftman, a spokesman for the publishing empire.

Milton S. Gould, lead attorney for Sharon, retorted in an interview, "They're going to die in the last ditch."

Closing arguments in the libel trial, which began in mid-November, are scheduled for later this week. Time called no defense witnesses in the case but did cross-examine eight magazine employes Sharon had called as "hostile witnesses."

The case has placed a magnifying lens over the process employed by the magazine in crafting the single paragraph of a February 1983 Time cover story that is at issue. It has also prompted a second look at Sharon's actions in September 1982 when he sent Lebanese Christian Phalangist militiamen into two Beirut refugee camps, where they massacred hundreds of Palestinian men, women and children during a 36-hour rampage. Israeli soldiers were posted outside at the time.

A three-member Israeli commission headed by Chief Justice Yitzhak Kahan concluded in a report in February 1983 that Sharon bore "indirect responsibility" for the killings and recommended his ouster as defense minister, saying he should have foreseen the likelihood the massacre would take place. But the commission absolved Sharon of any foreknowledge of or direct responsibility in the killings.

But Time Jerusalem correspondent David Halevy filed a dispatch the magazine used in altered form suggesting that the commission had put a confidential stamp on, and placed in a classified appendix to its report, documents that revealed a deeper involvement by Sharon.

Halevy testified during the trial that his reporting was based on leads from confidential intelligence and military sources and "my analysis." He acknowledged under questioning, however, that he had no source for his assertion that the damaging information was in the secret appendix but had "inferred" that. His superiors at Time conceded that they had never learned the names of his sources.

Sharon has assailed the controversial paragraph as a "blood libel" tantamount to calling him a mass murderer. What he objects to is Halevy's report that the former defense minister had discussed with Phalangist leaders the need for them to take revenge on the day before the massacre began.

Both Sharon and Time had for months pressed the Israeli government to open secret documents amassed by the investigating commission. The Israeli cabinet, which had been citing national security and foreign policy concerns, yielded late last month and agreed to a compromise offered by U.S. District Court Judge Abraham D. Sofaer, who is presiding over the trial here.

Under the terms of that arrangement, Kahan, who is now retired, reexamined at the prime minister's residence in Jerusalem the appendix, notes of meetings Sharon had with Phalangist leaders before the massacre and the secret testimony of Israeli officials present at those sessions.

Two Israeli lawyers, one representing Time and the other Sharon, were allowed to inspect all the documents Kahan reviewed but were prohibited by the compromise from divulging any of the contents to either their clients or the New York attorneys for both sides unless authorized to do so by the Israeli attorney general.

Kahan, responding to questions put by Judge Sofaer, said none of the documents indicated either that Sharon or any of the Phalangists whom he had met had discussed revenge, nor was there anything in the papers to indicate Sharon had known the Phalangists would massacre civilians if they went into the camps unaccompanied by Israeli soldiers.

Kahan added, "The conclusion to be drawn from the documents with regard to Minister Sharon's knowledge of the massacre -- and the sense of foreseeing in advance that such an occurrence was liable to happen -- were considered in detail in the published report of the commission . . . . "

In agreeing to the compromise for inspection of the documents last month, Time had said it would publish a correction or retraction if the papers failed to provide proof for the paragraph at issue.

But today, the statement by Time noted that its Israeli representative, Haim Zadok, a former minister of justice, had objected that the papers reviewed had not included material gathered by staff investigators for the commission.

The magazine's statement said Time believes "this information could include the testimony of the most objective parties present at the meetings" Sharon had with the Phalangists.

"Mr. Zadok was allowed to give Time Inc. his reactions about this situation but the Israeli government forced Time Inc. to sign an agreement to remain silent about the substance of those reactions," the statement said. "As soon as our lawyer is permitted to make his reactions public, we will release them."