The 1985 plan to make secret payments to Israel from the Pentagon budget to protect a $1 billion Iraqi pipeline project involved $400 million in military aid over a four-year period, ABC News reported last night.

The proposal was devised by pipeline promoters, including National Security Council staff members and E. Bob Wallach, a close friend of Attorney General Edwin Meese III, but was killed on the advice of former national security adviser William P. Clark, who denounced it as a "protection racket."

Adding detail to a report in The Washington Post yesterday, ABC said the $400 million would have been set aside in a special bank account and would have been over and above what Congress had appropriated for Israel.

The payments would have been made in annual installments, starting after construction of the pipeline began and continuing as long as Israel did not interfere with the pipeline. Sources told The Post that Congress would not have been informed of the scheme, which was never submitted to President Reagan.

According to memos prepared by Wallach and obtained by The Post, the plan was supported by Meese and had the endorsement of William J. Casey, who then was director of the Central Intelligence Agency. Wallach conferred with Casey about the matter on Dec. 16, 1985. According to Wallach, Casey "approved the concept with expression as to it being unique in his experience."

Meese's lawyers told The Post Wednesday they thought Meese had nothing to do with the pipeline as late as mid-December of 1985. Yesterday they said that Meese could not recall being told of the payoff plan.

Meese's chief attorney, Nathan Lewin, said that Meese "stands by" a statement he made Feb. 1 that "the sum and substance" of his involvement with the pipeline consisted of sending Wallach to see national security adviser Robert C. McFarlane in June 1985, referring Shimon Peres, who was then prime minister of Israel, to McFarlane in October 1985 and discussing the pipeline briefly with Peres when Peres was in Washington on a state visit that month.

"The attorney general was not involved in any plans to utilize Defense Department funds for the project, gave no 'assurances' about any such plan, and arranged no meeting for that purpose," Lewin said.

Wallach's lawyer, George Walker, said he was "unaware" of the details of the Pentagon funding plan. "I know it was recommended," he said. "It was recommended by McFarlane. Obviously Casey had some concept of what it was."

McFarlane, who had been encouraged by Meese to support the pipeline, resigned from the NSC on Dec. 4, 1985, leaving a deputy, David Wigg, the main NSC official familiar with the plan. McFarlane's successor, Adm. John M. Poindexter, knew nothing about it, sources said, until he took over as national security adviser. When he heard of the plan, according to the sources, he consulted with Clark and killed it.

Wallach, a San Francisco lawyer who has known Meese for 30 years, became involved in the pipeline in the spring of 1985 when he was hired by Swiss financier Bruce Rappaport, a Geneva-based multimillionaire who was close to Peres. The Bechtel Group, a worldwide engineering and construction firm that was to build the pipeline, had enlisted Rappaport to secure the necessary "security" against Israeli attack. Sources say that Bechtel selected Rappaport largely because of his ties to Peres and other leading Israeli politicians and that Rappaport, in turn, hired Wallach because of his ties to Meese.