Family, friends, colleagues and top Army officials gathered yesterday in a military chapel at Fort Myer to honor Maj. Arthur D. Nicholson Jr. and eulogize him as a man who had volunteered for a stressful assignment because he wanted to be on "the cutting edge."

Nicholson, 37, a liaison officer to East Germany, was shot and killed by a Soviet sentry near a garage-like storage shed one week ago. Nicholson, whose hometown was West Redding, Conn., had been attached to the 14-member liaison mission in Potsdam since 1982.

As several hundred people honored Nicholson at a service in Fort Myer's Memorial Chapel and a military burial in Arlington National Cemetery, Secretary of State George Shultz and Soviet Ambassador Anatoliy Dobrynin met at the State Department and agreed on discussions to prevent similar incidents.

In the chapel, family, friends and colleagues sat silently as the muffled beats of a drum corps outside signaled the arrival of the major's flag-draped casket.

Col. Roland LaJoie, commander of the liaison mission, recalled Nicholson as a man who "not only passed the tests, he set the standards."

Nicholson was "my officer, my professional colleague and, most importantly, my personal friend," LaJoie said. "I was the last of us to see Nick alive and the first to see him dead."

LaJoie praised Nicholson's heroism and decried the circumstances of his death. "It was not a battle, it was not a fair fight; he was unarmed, in uniform, in broad daylight . . . . "

And he stressed that Nicholson believed in the value of his work. "He constantly sought ways to increase contacts with Soviet officers so we could get to know each other better. Nick immensely enjoyed what he was doing, and I can tell you unequivocally, he was very good at it.

"He wanted to be out there, and he needed to be out there, close to what he considered the cutting edge," LaJoie said.

Following the chapel service, the funeral procession wound slowly through the cemetery. The horse-drawn caisson bearing Nicholson's casket came to rest near the Tomb of the Unknown Soldier.

More than 200 people ringed the grave site under ashen skies, listening to the music that resounded for minutes before members of the U.S. Army Band marched into view. Six white horses pulling the caisson halted near the grave site, and Nicholson's family stood behind -- his parents, his wife Karyn and his 9-year-old daughter Jennifer, who clutched a sprig of flowers in one hand and a doll in the other.

Riflemen fired three volleys into the chilly air, and a single bugler played Taps.

After a brief, quiet service, Deputy Secretary of Defense William Howard Taft IV presented flags to Nicholson's wife and father; Army Secretary John O. Marsh Jr. gave the Legion of Merit award, and Army Chief of Staff Gen. John A. Wickham presented The Purple Heart.

Nicholson's family rose and, one by one, placed roses on his casket. His daughter, then his wife, bent to kiss the lid. The funeral party dispersed quickly, and a few people drifted down the hillside from the Tomb of the Unknown Soldier to stare at the casket, the mounds of flowers and the empty chairs.