The six jurors in the trial of Ariel Sharon's libel suit against Time Inc. began deliberations this evening after hearing nearly two hours of complicated instructions on how to go about deciding the case.

"This case involves a balancing of values, both of which are important in our society," U.S. District Court Judge Abraham D. Sofaer told them. "The law in effect recognizes that reputations of individuals are sometimes important enough to warrant legal protection from the injury that can be inflicted by false, defamatory statements.

"On the other hand, the law of New York and our federal Constitution guarantees to individuals, and particularly to the press, freedom of speech."

The jury deliberated for 2 1/2 hours tonight before recessing until Tuesday.

Time magazine, in its current edition, printed a partial retraction of a key detail in the paragraph of the February 1983 cover story at issue in this case.

But in language closely conforming to the arguments of Time's lawyers in court, the statement said: "Time stands by the substance of the paragraph in question."

The paragraph dealt with Sharon's role in the 1982 massacre of hundreds of Palestinians at two Beirut refugee camps.

Although an examination of secret Israeli documents Jan. 6 uncovered no evidence to support the allegation that Sharon discussed the need to take revenge the day before the massacres began, the magazine, in its current two-page article on the trial, said the information was checked again as recently as two weeks ago with its confidential sources, who again confirmed its accuracy.

Time said the error it made -- that details of the conversation were in a secret appendix to an Israeli commission report -- "is relatively immaterial."

A spokesman for the magazine said the partial retraction is "very similar" to the wording it proposed last week in aborted negotiations for an out-of-court settlement.

Sharon, a former Israeli minister of defense, rejected the proposal. He later said he wanted a full retraction of the entire paragraph and a statement of apology from Time. The correction printed today said only that "Time regrets that error."

Although ostensibly limited to the narrow issue of libel, the trial, which began Nov. 13, has been in many respects a political trial. It has reopened old questions and wounds in connection with Sharon's role in the massacres, an outcome of Israel's invasion of Lebanon, a military plan conceived and initially led by Sharon. Ironically, Israel's cabinet today decided to terminate the war in Lebanon, without realizing most of Sharon's goals.

Sharon spent much of the day in a small office behind the courtroom calling his allies and adversaries in Israel in a last-ditch effort to prevent the withdrawal.

Meanwhile, lawyers for Time and Sharon haggled over nuance and detail in the 65 pages of instructions given to the jury.

Reporters and the public were expelled again from the courtroom today while the lawyers argued over whether the Israeli government had provided Time access to all relevant secret documents.

Sofaer said he regretted clearing the court but felt bound by an agreement he made with the Israeli government forbidding public release of "reservations" expressed by a Time representative who inspected the classified papers.

The Israeli cabinet has freed Sofaer from his commitment, but that action must be ratified by a committee of Israel's parliament.

An Israeli commission found in February 1983 that Sharon and top Israeli military officials were indirectly responsible for the massacre of hundreds of Palestinian men, women and children in September 1982 because they had failed to foresee it when they sent Lebanese Christian Phalangist militiamen into the refugee camps.

The massacre began two days after the Phalangist commander, president-elect Bashir Gemayel, was assassinated. Some militiamen thought the Palestinians had played a role in Gemayel's murder.

Although Israeli soldiers were posted outside the two camps during the 36 hours of killings, the commission explicitly absolved Sharon and all other Israelis of any direct role.

Time, in reporting on the commission's findings, said it had learned that an appendix to the panel's report contained details of a conversation Sharon had with Gemayel's father and brother in which Sharon "reportedly discussed with the Gemayels the need for the Phalangists to take revenge for the assassination of Bashir . . . . "

Time conceded in its partial retraction today and in court last week that it erred in reporting that the details were contained in Appendix B but said it stood by the rest of the story.

Sharon has called the paragaph a "blood libel" and says it, in effect, labels him a mass murderer. However, his lawyers have agreed that that is not the legal question. Rather, they consented to language in the judge's instructions to the jurors that, in order to find that Sharon was defamed by the paragraph, the jury must determine that an average reader would understand it to mean that he "encouraged" or "consciously intended" for the Phalangists to kill civilians deliberately.

If the jury thinks that the paragraph does not mean either of those things, Sharon will have lost.

To win, jurors must be convinced that Sharon has clearly and convincingly proven two things in addition to defamation: that the substance of the paragraph was false and that Time had a "high degree of awareness" of that when it printed the article.

Sharon is seeking $50 million in damages but has said the money is not important.