President Bush, after a two-hour dinner meeting with West German Chancellor Helmut Kohl, said last night "we're making progress" in allaying Soviet fears about a unified Germany remaining in the NATO alliance and said he hoped further steps would be taken at next month's NATO meeting in London.

Bush said he believes he made some headway in convincing the Soviets during his summit with Soviet President Mikhail Gorbachev, but added, "We're going to keep on trying because the facts are on our side. A united Germany in NATO will not be threatening to the Soviet Union."

Kohl's visit, his third this year, continued the hectic pace of diplomacy over the future shape of the Europe. Germany's military role in this new Europe remains a point of contention with the Soviets.

The German question was a main topic of discussions between Secretary of State James A. Baker III and Soviet Foreign Minister Eduard Shevardnadze this week in Copenhagen as well as among NATO foreign ministers who met in Turnberry, Scotland. Baker cut short his visit to Europe to join last night's dinner at the White House.

While noting that he never expected the solution to come quickly, Kohl predicted that the ongoing multipower negotiations over German unification could be wrapped up by fall and said that, throughout the process, the Germans would "bear in mind Soviet security."

Bush and Kohl pointed to the NATO summit in London in early July as the next crucial round of diplomacy, with Kohl saying there were "great expectations" for the meeting that they were working "to fulfill." At that meeting, the allies are expected to outline how to turn their military alliance into a political organization that can successfully manage the new realities of Europe.

"We are determined to more clearly define what we're talking about," Bush said, adding that a "common direction" for the revamped NATO, rather than final agreement, was likely.

Kohl repeated his opposition to the idea of a united Germany standing as a neutral state in Europe.

"Any singling out, any neutralization always means isolation," Kohl said, adding that out of Germany's isolation during the 1920s came "bad things" for the world.

Asked if the Germans might take a unilateral step to reduce the size of its army as a gesture to the Soviets, Kohl replied, "The strength of a future German army is not a private matter to be decided by the Germans."

Bush stressed his solidarity with Kohl, saying there was even "a nuance" of difference between the two countries in their conviction that membership in a revamped NATO was the proper course and that eventually the Soviets could be convinced of that.

"I felt, without being able to document it, that we were able to narrow the differences" during the summit with Gorbachev, Bush said.

He said the fact that the Soviets paid "lip service" to the concept of a united Germany free to determine its own alliances gave him hope that eventually the two sides could find "common ground."

Bush and others were "surprised" by Gorbachev's acceptance of that concept, an administration official said, and the president pressed the Soviet leader to be sure they understood one another. The Soviets also signed off on the text of Bush's Sunday news conference statement in which he repeated that concept, the official said.

But Gorbachev's insistence that there be a transition period for a unified Germany seemed to contradict that, and U.S. officials hoped Baker's talks with Shevardnadze would clarify the Soviet position.

Bush will continue his talks on Germany's future Monday when he meets with East German Prime Minister Lothar de Maiziere. It will mark the first such meeting between a U.S. president and East German prime minister, and the two are expected to discuss the next steps toward unification that will occur at the beginning of July.