When Donald P. Hodel, President Reagan's choice as interior secretary, was named energy secretary two years ago, he was known for his hard line against conservationists -- "a small, arrogant faction which is dedicated to bringing our society to a halt," he had called them as a federal official seven years earlier.

One hour after taking that office, however, he extended an olive branch to conservation groups, saying he wanted to meet with them and with energy industry leaders in search of "common objectives." And he later fought against White House plans to eliminate certain conservation programs.

The conciliatory style did not convert most critics, but it was a hallmark of Hodel's tenure at the Energy Department. Unlike other Reagan appointees in his field, the 49-year-old Oregonian managed to retain strong ideological commitments -- as an advocate of expanded nuclear power, rapid energy development and decontrolled energy prices -- while achieving a working relationship with critics in Congress, the environmental movement and industry, according to observers.

For this reason, senior administration officials expect Hodel to succeed in advancing Reagan's pro-development agenda at Interior, an agenda that became mired in controversy under the leadership of Reagan's first secrevary, James G. Watt. It includes rapid acceleration of offshore oil and gas leasing, coal leasing and other kinds of development on public lands in the West, with less emphasis on conservation than under previous administrations.

Hodel's openness to conservation groups came as a surprise because he served 21 months as Watt's undersecretary before Reagan moved him to Energy in November 1982. He was known then as a loyal subordinate who maneuvered Watt's initiatives on wilderness, offshore leasing and coal mining through the bureaucracy.

He was later linked closely to Watt's controversial coal-leasing program, which transferred federal coal development rights in the West to private companies for $100 million less than they were worth, according to the General Accounting Office. Interior documents showed that Hodel approved the policy that authorized leasing the coal at lower prices than initially planned.

A close associate said yesterday, however, that Hodel often was responsible for scaling back some of Watt's initiatives to make them politically palatable.

"People on the outside don't know how crazy things were at Interior when Watt was there," said the associate, who worked with Hodel at Interior. "The policies may have looked radical, but they were a lot less so than they might've been without Don's input."

Hodel, in the words of this colleague, shares Watt's pro-development philosophy toward natural resources, but "with a good injection of common sense."

At Energy, Hodel has become known as an articulate point man for Reagan's policies, although several major initiatives have been rejected by Congress. For example, Congress killed the Clinch River Breeder Reactor, which Hodel fought to save for the nuclear industry. It also rejected a bill to deregulate the price of old supplies of natural gas, which Hodel championed.

His main legislative success was the enactment of a bill providing for the nation's first permanent disposal site for high-level nuclear waste. Behind the scenes, he helped kill the Environmental Protection Agency's effort to impose regulations to curb acid rain -- a proposal the utility and coal industries opposed.

Before coming here, Hodel was known for his advocacy in the 1970s of an abortive $3.2 billion Pacific Northwest project, the Washington Public Power Supply System, known as "Whoops," in which four nuclear plants were cancelled because costs escalated wildly and electricity demand slumped. Hodel at the time headed the Bonneville Power Administration, which helped set federal energy policy in the area. Hodel has acknowledged that he erred then but insists that his position today is solid.

Outgoing Interior Secretary William P. Clark, a longtime Reagan intimate, backed Hodel as his successor. The choice was uniformly praised yesterday by energy industry spokesmen, but criticized by conservationists.

"I think he is extremely knowledgeable, extremely articulate," said Ed Rothschild of the Citizen Labor Energy Coalition. "But I do not think his decisions, from Whoops to natural gas, have been in the public interest."