A chartered airplane bringing 250 American soldiers home from peace-keeping duty in the Middle East crashed into rocky woods this morning, killing all passengers and the eight-member crew.

The DC8 ferrying 101st Airborne Division troops from Cairo to the United States was less than a half mile from the airfield runway here after a stopover for refueling when a bright flash lit up the sky.

Hedley Gill, an airport car rental attendant, and other witnesses said the plane had lifted off without incident and had reached an altitude of about 1,000 feet before it crashed with a loud explosion.

"Everything became so bright, and then I saw this black smoke towering up," said Gill.

Bodies and the twisted wreckage of the jet were strewn over woods south of the airport. Keith Head, a volunteer fireman who rushed to the scene said, "It was quite a mess, debris everywhere."

"There was no emergency call from the captain; it just crashed," said Cpl. Donald McDonald of Gander Airport Security.

It was the worst U.S. military air crash in war or peace, Pentagon spokesman Robert B. Sims said. It was the seventh major airline disaster in 1985, a year termed aviation history's worst in terms of deaths.

The flight by Arrow Air, a Miami-based airline, had taken off in Cairo, refueled in Cologne, West Germany, and Gander, and was headed for Fort Campbell, Ky. The airline reported that there were 257 persons aboard, which conflicted with reports from here that 258 had died.

Some relatives of the servicemen and women aboard the plane were informed of the crash as they arrived at Fort Campbell for a welcoming ceremony. The troops were returning home after a six-month tour of duty with the 11-nation Multinational Force and Observers stationed at Sharm el Sheik in the Sinai. The force monitors compliance with the 1979 Israeli-Egyptian peace treaty.

In Cairo, Maj. Ronald W. Carpenter Jr., force liaison officer, said security precautions at Cairo for the flight were "the same as for all passengers."

Jim Williams, the force's director of aviation based in Rome, declined to answer questions about chartering procedures for the organization, which makes its transportation arrangements independently.

At Fort Campbell, the base commander, Maj. Gen. Burton D. Patrick, said at a news conference that an Army team would help transfer bodies from Newfoundland to Dover Air Force Base in Delaware, where identification could take up to a week. A temporary morgue was established at the airport, Peter Boag, chief investigator for the Canadian Aviation Safety Board said.

David Owen, deputy investigator for the Canadian Aviation Safety Board, said last night that his team and the Royal Canadian Mounted Police had recovered 40 percent of the bodies, and would resume the search in the morning.

Last night, Arrow Air released the names of the DC8's crew: Capt. John Griffin; First Officer John Robert Conley; Flight Engineer Mike Fowler; Maia Matasovski, flight service manager, and flight attendants Jean Serafin, Desiree McKay, Ruthie Phillips and Stacey Cutler. The three cockpit crew members were based in Miami; the others in the New York area.

Investigators here said late today that the plane's cockpit voice recorder and flight data recorder had been recovered and were flown to Ottawa for analysis. Owen said the boxes appeared to be "in relatively good shape."

Boag declined to speculate about the cause of the crash, which occurred at 6:45 a.m. (5:15 a.m. EST). Airport employes and others said snow and a light, freezing rain were falling as the plane took off, but they said these are normal conditions at this airfield on the northeastern edge of North America, a major refueling station for transatlantic flights.

Airport manager John Pittman said in an interview with the Canadian Broadcasting Corp.'s news show "As It Happens" that the plane had not been de-iced before takeoff. In a briefing last night he declined to comment on that report.

A spokesman for the Canadian Security and Intelligence Service said the fiery crash was being treated as an accident with no indication of sabotage. But Bruce Reid, a spokesman for Transport Canada, the Canadian transportation ministry, said the possibility of sabotage could not be ruled out until an investigation is conducted.

An official of the Royal Canadian Mounted Police said, "There is nothing to indicate any act of terrorism."

In Washington, White House spokesman Larry Speakes said initial reports indicated "no evidence of sabotage" or an explosion in flight.

"We have no indications of explosions prior to the crash or of hostile action," said Pentagon spokesman Sims. "But we just have nothing to indicate the cause at this time, and until an investigation is carried out, we'd not be able to go further than that."

The Pentagon said a 10-member team headed by Army Maj. Gen. John S. Crosby had flown to the scene. "It is not an investigative team," a spokesman said.

At last night's briefing, Gen. Crosby indicated that his main concern was recovery of the bodies.

The Pentagon also said it had been informed that the Federal Aviation Administration and the National Transportation Safety Board were sending representatives to the crash site to participate in the Canadian government's investigation.

President Reagan said he was "shocked and saddened" by the disaster.

Canadian Prime Minister Brian Mulroney called the crash "an enormous tragedy" and pledged a thorough investigation.

Egyptian President Hosni Mubarak cabled President Reagan to express "extreme sorrow and profound pain" over the deaths of the members of the Sinai peace-keeping force, United Press International reported.