A proposed out-of-court settlement of the lengthy lead shot/steel shot controversy has collapsed after an acrimonious meeting of the National Wildlife Federation's chief executive and the assistant interior secretary for fish, wildlife and parks.

Executive Vice President Jay Hair said yesterday that his organization will not drop a suit calling for a ban on use of lead shot for all waterfowl hunting in the contiguous 48 states starting in the 1987-'88 season. The suit is scheduled to be argued Friday in U.S. District Court in Sacramento, Calif.

Scientists say spent lead shot annually kills as many as 2 million ducks that ingest it, and that the dead waterfowl in turn poison endangered bald eagles, which feed on them.

The Interior Department, which has been trying fitfully for nearly a decade to institute steel shot regulations, was said to have forged a compromise under which it would gradually phase out lead shot by 1991 and NWF would drop its suit.

But Friday, when Hair and Assistant Interior Secretary William P. Horn met, sparks reportedly flew and the agreement came apart.

"Had the federation agreed to this approach, a decade-long process to end lead-poisoning in waterfowl and bald eagles could have been concluded," Horn said in a statement yesterday. "Instead, for legal and procedural reasons that we do not fully comprehend, the federation has decided to throw away this opportunity."

Horn announced that Interior will proceed with the phaseout plan, and will publish the proposed rule in the Federal Register Friday.

NWF officials said Hair turned down the compromise because Horn refused to sign a consent decree to ensure that the promised action would be taken. "One of our stipulations was that it be judicially enforceable," said federation Vice President Lynn Greenwalt.

Horn told Hair he couldn't sign a consent decree, citing a memo from Attorney General Edwin Meese III barring Reagan administration officials from entering into such decrees for fear they might hamstring future administrations.

Horn offered instead a "stipulated agreement," which the federation said lacks the same force. It "simply does not assure us that Interior will be irrevocably bound," Hair wrote to Horn the day after the meeting.

Sources said that at the settlement meeting, which ended abruptly when NWF officials didn't return from a cooling-off break, Hair told Horn he was "arrogant" to be "telling us to trust you one more time."

Apparently incensed, Horn fired off a letter to Hair expressing regret "that NWF prefers confrontation and legal disputation to consensus-building and agreement."

Interior first took up the lead shot controversy almost a decade ago by phasing in steel-shot zones where the worst poisoning was occurring. But opposition from hunters and ammunition manufacturers sidetracked the program in some states.

In 1981, steel shot rules suffered under Horn's predecessor, Ray Arnett, who opposed steel shot.

Last year NWF won a suit in the Sacramento court which required 22 counties in five states to either require steel shot or lose the right to open waterfowl hunting seasons.