A proposal to redevelop the old city post office near Union Station won long-sought approval from federal planners this week after the U.S. Postal Service scrapped the most controversial element, a 1 1/2-story addition to the top of the historic structure.

However, the rehabilitation of the 75-year-old Beaux Arts-style building remains on indefinite hold as Congress considers converting it to legislative offices.

Representatives of the Postal Service and its private development partners said they will not proceed with the $120 million renovation and expansion until Congress decides whether it needs the old post office for its own use.

"We've made a commitment to them {members of Congress} not to do anything in the short term that would preclude their taking the property," said Stephen Porter, a Washington attorney for the would-be developers.

The National Capital Planning Commission unanimously endorsed the renovation proposal at a meeting Thursday and local preservationists signaled their approval after the Postal Service agreed to leave the roof line at its current level.

But the Postal Service also deleted a popular feature of the original proposal, a 40,000-square-foot postal museum. Dennis Wamsley, the Postal Service's real estate manager, said the scaled-back development would not generate enough revenue to pay for the museum.

As the plan now stands, 340,350 square feet of space would be added to the six-story building, bringing its total size to 1,128,855 square feet -- about 50,000 square feet less than previously proposed.

The open courtyard of the building would be filled with offices, and a mezzanine level would be inserted between the first and second floors. A small portion of the building would be used for retail purposes.

The private developers, who include Julien J. Studley Inc. and Arthur G. Cohen Properties Inc. of New York, would assume the cost of restoring the building's exterior and its main lobby and constructing the new space. They would lease it from the Postal Service.

Earlier versions of the renovation plan met fierce resistance from nearby residents and officials who feared they would disrupt architect Daniel Burnham's classical design and overshadow neighboring Union Station.

The Postal Service was rebuffed twice by the NCPC staff last year, first on a proposal to add 2 1/2 stories, and later with the proposal to add 1 1/2 stories, or about 37 feet to the building's height. Neither plan was voted on by the NCPC, which has the power to veto major alterations of federal buildings in the District of Columbia.

An estimated 4,200 people would be employed in the redeveloped post office, but only 429 parking spaces would be provided. Nonetheless, according to a study prepared for the commission, the development would not create unacceptable traffic conditions. That projection is based on the Postal Service's pledge to require commuters to carpool, use public transportation or follow other measures to reduce the development's effect on traffic and parking, according to Ronald Wilson, the commission's environmental officer.

The commission said it would work with the D.C. Department of Public Works to control possible traffic disruptions on North Capitol Street, where the parking entrances could be located, before it approves final site and building plans.

The Postal Service currently uses about 5 percent of the building as a Capitol Hill post office, which would remain in place under the redevelopment plan.

The landmark building was the main mail-handling facility for the District until September 1986, when a $100 million complex was completed on Brentwood Avenue in Northeast Washington. Postal officials had projected that redevelopment of the old post office would generate enough funds to defray 40 percent of the cost of the new facility.

Under a bill sponsored by Sen. Wendell H. Ford (D-Ky.), chairman of the Senate Rules and Administration Committee, Congress would buy the old post office from the Postal Service at a price to be negotiated. James O. King, the committee's staff director, said hearings on the bill are planned for this spring.

The building could ease a critical shortage of congressional office space, according to Elliott Carroll, executive assistant to the architect of the Capitol. One of several possible scenarios is that the private redevelopment of the building proceed and Congress become a tenant, officials said. Congress is almost certain to become an occupant of the building one way or another, King said.

Meanwhile, the Smithsonian Institution's collection of 16 million stamps and other artifacts from the history of the Postal Service will remain at the National Museum of American History. For lack of display space -- only a few thousand square feet are devoted to stamps and postal memorabilia there -- the vast majority of the collection is kept in storage, said Douglas Evelyn, the museum's deputy director.