A bitter standoff between the House and Senate over benefits for Vietnam veterans exposed to the defoliant Agent Orange killed a wide-ranging veterans benefit measure during the final hours of the 101st Congress.

"They were each looking for someone to blink and they went asleep instead," said John Hanson, a spokesman for the American Legion.

The legislation, which would have granted a 5.4 percent cost-of-living increase to 2.1 million veterans receiving service-connected disability pensions, died in the Senate after Sen. Alan K. Simpson (R-Wyo.), a frequent critic of veterans programs, objected to its Agent Orange provisions.

A spokeswoman for the Department of Veterans Affairs said yesterday it was the first time Congress failed to grant a cost-of-living increase to disabled veterans in the same year in which it granted increases to recipients of Social Security and similar benefits.

"We're disgusted and outraged by the treatment that disabled American veterans have received from Congress this year," said Joseph E. Andry, national commander of the Disabled American Veterans, in a statement. He added that "our elected representatives have been able to find the money and time to pass out their traditional pork-barrel projects, bail out savings and loan institutions and raise their own salaries."

Hanson said the Legion had agreed to a number of compromises in hopes of getting some of the Agent Orange benefits enacted this year. He predicted the battle would resume early next year when a new Congress takes office.

An effort to enact benefits legislation without the Agent Orange provisions died in the House Saturday night after Rep. Ted Weiss (D-N.Y.), an advocate of the Agent Orange benefits, objected. He told the House it should not yield to Simpson's objections because veterans who believed they were harmed by the chemical, widely used to defoliate jungles during the Vietnam War, "have been waiting for years and years to get just compensation."

In the Senate, Sen. Alan Cranston (D-Calif.), chairman of the Veterans Affairs Committee, was also rebuffed in his efforts to dissuade Simpson. Simpson's objections surprised some because, as Cranston noted in a floor speech, the Agent Orange benefits in the bill were "truly modest," and were already being given to veterans because Veterans Affairs Secretary Edward J. Derwinski had granted them administratively earlier in the year.

Stan Cannon, Simpson's press secretary, said the senator should not be blamed for the legislation's death. "Al very much wanted this bill," said Cannon. "He did a lot of blinking."

Rep. G.V. "Sonny" Montgomery (D-Miss.), chairman of the House Veterans Affairs Committee, issued a statement yesterday vowing to "come back bright and early next year" and enact legislation that would make the cost-of-living increase retroactive to Jan. 1.

The bill also would have boosted physician pay at VA hospitals, improved debt protections for reservists called to active duty in the Mideast and kept the VA health care system immune from any across-the-board budget cuts mandated by the Gramm-Rudman-Hollings budget act.

Montgomery noted yesterday in a joint statement with Rep. Bob Stump (R-Ariz.) that "ironically" among the benefits that will end Dec. 31 without new legislation is VA hospital care for veterans who say they are suffering as a result of exposure to Agent Orange.