The federal government has decided not to shoulder liability for damage that might result from commercial rocket launches at its facilities and is requiring U.S. rocket companies to pay millions of dollars in insurance costs that their foreign competitors do not have to bear.

The terms were laid out in a model agreement approved recently by the Air Force.

Last week, Martin Marietta Corp. became the first company to sign an Air Force contract based on the model, setting the stage for it to begin launching Titan rockets commercially in mid-1989 from Canaveral Air Force Station, according to company officials.

Some aerospace industry and administration officials expressed dismay that the government is asking the companies to indemnify themselves, their payload customers and the government. Some said the government should buy insurance to cover at least the possibility of a worst-case catastrophe, such as a launcher falling in a populated area, that could bring billions of dollars in claims.

But many termed the agreement "a significant first step" for the new industry and expressed confidence that money is to be made.

The controversy over how to handle the risks of space flight has been viewed as a major threat that could kill the industry in its infancy.

Launch services previously have been provided only by the National Aeronautics and Space Administration at artificially low prices that discouraged private competition.

After the Challenger shuttle disaster Jan. 28, 1986, and despite opposition from Congress and NASA, the administration removed a major impediment to commercializing launch services by banning most payload customers from the space shuttle.

However, there is still low-cost, government-subsidized competition from abroad, notably European Arianespace and the Chinese.

Richard E. Brackeen, president of Martin Marietta Commercial Titan Systems, said the cost of insurance for his company will create a competitive disadvantage ranging from "a few million dollars a launch to several million dollars per year" compared with the French Ariane launch services, whose insurance costs are subsidized by the government.

The figures are confidential, and insurers will not commit themselves to final prices until shortly before launch time, he said.

"We wish it had turned out somewhat less onerous for industry," he said of the agreement. But, he said, the company "felt we had no choice but to proceed."

The company yesterday signed a contract with Intelsat to launch two communication satellites. Brackeen said Martin Marietta also expects soon to sign a contract for a third launch with a group of Japanese companies in partnership with Hughes Communications Corp. Contracts for the three launches will total a little less than $300 million, he said.

The new Air Force agreement "is a major step, not ideal, but a step in the right direction," said Courtney A. Stadd, director of the Transportation Department's commercial space office, established to regulate the new industry.

"It's been very difficult for the Air Force to accommodate this new mission," Stadd added. "This is the first time in their history they've been asked to make way for commercial industry. It must be difficult for a bird colonel who did not take business planning at the {Air Force} academy."

Air Force officials were not available for comment.

Insurers have become increasingly nervous after a rash of rocket accidents in the last 18 months, officials said, even though the Challenger and several unmanned rockets that failed did not carry insurable payloads. Premiums have been raised accordingly, they said.

According to the American Institute of Aeronautics and Astronautics, an organization of scientists, engineers, company and government officials, launch and in-orbit failures have cost almost $900 million in insurance losses since the mid-1970s, less than $500 million of which was covered by premium payments.

However, unmanned U.S. rockets have a high rate of reliability. For example, the Titan has had 130 successes in 135 launches, Martin Marietta's Brackeen said, compared with the Ariane's record of 14 successes in 18 launches.

Stadd suggested that, when a company launches for itself instead of for the government, "if you assume a rocket has 95 percent reliability, you have every incentive as a financial officer to make it 99 percent."

The agreement leaves several questions. For example, "smaller entrepreneurs will have a difficult time with it," Stadd said. "Larger companies clearly can absorb much more financial exposure than the smaller ones, and we hope that somewhere out there is the future Federal Express of space."

The agreement will require adjustments if that is to happen, he said.

One such entrepreneur, Donald K. (Deke) Slayton, said he expects no problems. The former Mercury astronaut said Space Services Inc., which he heads, was the first company to sign a contract for use of government launch facilities, in this case those of NASA.

But, he said of his company's Conestoga booster, "We're dealing in a small launch vehicle with high reliability and a facility {Wallops Island, Va.} that doesn't have many assets on it. It's an advantage of being small."

Stadd said that his office has statutory responsibility for setting liability levels and that "we intend to fully exercise that authority" to keep the companies' costs as reasonable as possible.

If the cost of an accident exceeds the minimum level of insurance protection, he said, a government agency such as the Justice Department would step in to determine fault and seek to recover damages.

Martin Marietta's contract calls for $1 billion in coverage for itself in case of catastrophic damages involving third parties, Brackeen said, and the company must also cover any such claims against the government.

"What happens if the damages exceed $1 billion?" asked a congressional aide who follows space issues. "Nobody has done an assessment of how much Canaveral Air Force Station is worth.

"What if pieces of a Titan rocket fall through a building and harm the space shuttle? . . . I think a lot of people assume Congress and the government will step in and bail the situation out."