Former Washington Diplomat captain Jim Steele has signed a contract with the Memphis Rogues, signaling another chapter in a story filled with legal entanglements involving Steele, the Diplomats and the Pittsburgh Spirit of the Major Indoor Soccer League.

According to sources in the Washington organization, Steele has hired a lawyer to look into the possibility of legal action against the Diplomats for releasing him.

At the same time, the diplomats are considering legal action against the Pittsburgh MISL team. Washington claims that since Steele was hurt -- permanently, according to its doctor -- while playing for Pittsburgh indoors last winter, the Spirit is liable to the Diplomats.

Steele underwent knee surgery last winter after being injured while playing Pittsburgh. He was playing with the Spirit as part of a loan agreement reached with the Dips.

Last month, Steele was examined by the Diplomats' team doctor, Carl MacCartee. According to Coach Gordon Bradley, MacCartee told the Dips Steele would not be able to play soccer again without risking serious, permanent injury. Several weeks later, Steele was released by the Diplomats.

Reportedly, he went to another doctor in Washington who told him that, with rehabilitation, he could play again. Then, through former teammate Paul Cannell, now in Memphis, he contacted Rogue General Manager Rudy Schiffer, and asked for a tryout with Memphis.

"I figured it was worth taking a shot." Schiffer said yesterday, "Jimmy's an outstanding defender. We brought him down here, had him examined by our doctor and we were told he could play again."

In a letter to Schiffer last week, Dr. William Bourland wrote that Steele could play again "in three weeks," if he was put on a proper rehabilitation program. Under the program, Steele was required to be able to lift 35 pounds in a knee-extension exercise before he could practice and 50 pounds before he could play.

"Jim's up over 40 pounds and working extremely hard," Schiffer said. "He worked out with us lightly today although he's not yet ready for a full scrimmage. He wants very much to come back and play."

On the subject of lawsuits, Pittsburgh General Manager John Brooks could not be reached for comment yesterday. Steele, according to Schiffer, was en route back to Washington to pick up some things from his home.

Washington General Manager Andy Dolich refused to comment on the situation. "Any questions about Jim Steele will have to be answered by Madison Square Garden's lawyer," he said. That lawyer, Greg Ricca, did not return a reporter's phone calls yesterday.

Steele was a controversial figure in Washington. He and Cannell became embroiled in a battle with management last year and both players, among the most popular ever to play for the Dips, were told they would not return this season. Cannell was sold to Memphis but Steele was hurt before a trade could be worked out.

Schiffer said that Steele's contract with Memphis is conditional on his passing another physical June 15. If he cannot play, Memphis has the right to release him at any time without paying him for the rest of the season. "Jim wanted it that way," Schiffer said. "He's very confident that he will play again."

The Dips were honored at the Touchdown Club yesterday along with their Sunday opponents, the Cosmos.

Some highlights: Sonny Werblin on convincing the Cosmos to move to the Meadowlands (which he then headed) in 1977: "I wish we hadn't convinced them to move. Then we might have a chance to win on Sunday."

Gordon Bradley, in a spirited 10-minute talk: "We've taken a lot of knocks and a lot of criticism. But we're going to come back. This is the best group of players I've ever been associated with. There's been a lot of pressure on the team, especially on Johan Cruyff. We accept it. We'll handle it."

Robert Sigholtz, general manager of the Starplex, manager of RFK Stadium: "We're going to have a crowd of 40,000 people out there Sunday."

Dip General Manager Dolich: "Just remember, I never said that."

NASL Commissioner Phil Woosnam: "It's going to be a great game Saturday." Has he changed the schedule without telling anyone?