In an effort to minimize squabbles with Congress over the federal deficit this year, the Reagan administration is drafting a fiscal 1989 budget that proposes, among other things, a $370 million, or 39 percent, increase in funding for AIDS programs and the elimination of a handful of federal activities.

Earlier budgets had proposed eliminating many government agencies and programs, proposals Congress generally ignored.

Among the perennial targets that are again being proposed for elimination by the Office of Management and Budget are the Interstate Commerce Commission, urban development action grants and the Economic Development Administration, according to administration officials. OMB also is seeking to end the Small Business Administration direct loan program and replace it with loan guarantees.

Partly in recognition of the political realities of an election year, OMB is not even trying this time to eliminate some heavily defended agencies, such as the Legal Services Corp., officials said.

In general, the proposed terminations and cuts in the budget that President Reagan will submit in mid-February will be considerably less controversial than those from earlier years.

This is largely because the White House and Congress have reached an accord on the overall level of defense spending, taxes and domestic spending for the current fiscal year and for fiscal 1989, which starts Oct. 1.

In certain areas OMB is proposing to expand or create domestic programs that will go some distance toward meeting congressional demands. The budget agency has proposed spending about $1.3 billion on research, education and treatment of acquired immune deficiency syndrome, officials said. The figure compares with an appropriation of $932 million for fiscal 1988 and is greater than the $1.145 billion requested by Health and Human Services Secretary Otis R. Bowen.

OMB is proposing a $6.6 billion budget for the National Institutes of Health, not including NIH's portion of the AIDS money. That is 5.5 percent more than NIH's 1988 level.

But OMB also is proposing to reduce projected spending on Medicare, the health program for the elderly and disabled, by $1.25 billion in fiscal 1989. That reduction includes the $770 million the government will save by trimming the "indirect teaching adjustment," an add-on to payments to hospitals that compensates them for the costs of employment and training interns and residents, officials said.

For Medicaid, the health program for the poor, OMB is proposing a $1.3 billion reduction in projected federal payments to states, which administer the program.

Details of the budget proposals emerged yesterday after OMB sent them to federal agencies. The agencies can appeal OMB's decisions to the White House.

At a briefing for reporters, OMB Director James C. Miller III declined to discuss the budget proposals in much detail, but emphasized that they are designed to conform with the recently enacted budget accord. "The president would like to cut domestic spending a lot more, and would like to spend more on defense, but he's constrained by this agreement from doing so," Miller said.

Officials said OMB is proposing increases for space programs and for the Justice Department while proposing cuts in water treatment grants and housing programs. The budget office also is proposing the sale of federal assets such as the Naval Petroleum Reserve.

The education budget, which OMB has sought to slash in previous years, will fare considerably better this time. Education Secretary William J. Bennett argued that the administration incurs political costs by seeking deep cuts in education programs that Congress continues to fund.

Officials said OMB has approved a plan to allow families to buy tax-free U.S. savings bonds and use the proceeds to pay college tuition. The idea -- pushed by Education Department officials, Vice President Bush and Sen. Edward M. Kennedy (D-Mass.) -- could cost $1 billion annually in lost revenue after several years.

Under the plan, first reported in The Wall Street Journal, a family could defer taxes on the value of a Series E savings bond and the interest would be tax-free if the bond were cashed in and used for tuition.

Officials said Bennett will use his expanded budget to push proposals that would encourage school districts to allow parents more choice in the education of their children and improving teacher accountability.

Staff writer Barbara Vobejda contributed to this report.