A six-month Commonwealth effort to help negotiate a peaceful solution to South Africa's racial conflict has concluded that the Pretoria government "is not yet ready to negotiate fundamental change" and that international economic pressure against it "may offer the last opportunity to avert what could be the worst bloodbath since the Second World War."

In a damning report to the 49 Commonwealth governments, the seven-member Eminent Persons Group said that in the face of "obstinancy and intransigence" by Pretoria, "a racial conflagration with frightening implications threatens . . . in the very foreseeable future."

The report cautioned that it may already be too late to avoid such an outcome. But, it said, if Pretoria believes it is "protected" from sanctions, the escalation of violence now under way in South Africa is likely to accelerate. "In these circumstances," the report concluded, "the cost in lives may have to be counted in millions."

The report, due to be officially released Thursday, is likely to cause a major confrontation on the question of economic sanctions between Britain and the 48 former British colonies that make up the Commonwealth. It also is likely to provide ammunition for congressional advocates of harsher U.S. sanctions against South Africa.

Although the report uses the term "economic measures" rather than sanctions, Commonwealth Secretary General Shridath Ramphal, of Guyana, noted in a covering letter that "they come to the same thing."

While not directly urging their imposition, the report noted that the "question is not whether sanctions will compel change; it is already the case that their absence and Pretoria's belief that they need not be feared defer change."

In anticipation of the document's release, Foreign Office Minister Lynda Chalker repeated to Parliament today the government's belief that major economic sanctions could hinder reform and economically harm South African blacks. Previous use of sanctions has not worked, Chalker said, and "we shall only consider measures which will work."

Britain's reluctance to impose sanctions against South Africa is shared by much of the rest of Western Europe, although Denmark and Norway recently have taken steps to restrict their own economic activity there.

The Eminent Persons Group was created by the Commonwealth during its Nassau summit last October in response to a disagreement over sanctions between Britain and most other Commonwealth governments. Seeking to avoid a rupture, the summit appointed the seven-member body, headed by former Australian prime minister Malcolm Fraser and former Nigerian head of state Olesegun Obasanjo, to visit South Africa, talk to all parties to its conflict, and report back in time for a special Commonwealth meeting in August in London.

The group's mandate was "to foster a process of negotiation across lines of color, politics and religion, with a view to establishing a nonracial and representative government."

As a "matter of urgency," the Commonwealth also called on Pretoria to move immediately to dismantle the apartheid system of racial separation, release all prisoners and lift bans on the African National Congress, the main black resistance group, and other political parties there. The report noted that none of these things has been done.

The Eminent Persons Group spent much of the past six months in South Africa, where it traveled widely. It held 21 meetings with government ministers, including President P. W. Botha, black leaders in South Africa -- including three sessions with jailed ANC leader Nelson Mandela -- and outside the country, including governments of the so-called front-line states, and with other prominent South Africans.

It ended its efforts last week following what the report describes as South African refusal seriously to address a "possible negotiating concept" presented by the group, and negotiating difficulties it says were caused by last month's South African military raids in the capitals of Zambia, Zimbabwe and Botswana.

From its opening statement -- "None of us was prepared for the full reality of apartheid" -- to its closing appeal 68 pages later for help in assisting the people of South Africa to avoid an "awesome tragedy," the report detailed "a considerable element of wishful thinking" by Pretoria. The government, it said, believes that its problems stem from communist-inspired violence that must be stopped -- through negotiation or force -- before any real negotiations can take place.

Despite Pretoria's own claims and surface appearances, the group concluded that it "is not ready to negotiate fundamental change, nor to countenance the creation of genuine democratic structures, nor to face the prospect of the end of white domination and white power in the foreseeable future. Its program of reform does not end apartheid, but seeks to give it a less inhuman face."

In one of several passages detailing the group's frustration, it said "the South African govenment position defies succinct summary. It has perfected a specialized political vocabulary which, while saying one thing, means quite another."

On the other hand, the report commended the "reasonableness, . . . absence of rancor and readiness to find negotiated solutions" of ANC leaders Mandela and Oliver Tambo, and concluded that "there can be no negotiated settlement" in South Africa without that organization.

"The breadth of its support is incontestable," the report said of the ANC, "and this support is growing."

"The government believes it can contain the situation indefinitely by use of force," it said. "South Africa is predominantly a country of black people. To believe that they can be indefinitely suppressed is an act of self-delusion."