Dennis Conner's team has offered its first compromise in the pitched battle over where, when and how the next America's Cup will be run.

In three meetings with New Zealand challenger Michael Fay in San Diego last week, Conner's forces proposed a regatta open to all nations in boats of Fay's choosing off San Diego in May 1990.

Sources said the proposal was a first step in efforts to work out a deal between the bitter rivals, but Fay appeared unmoved, saying the two sides "are back in our respective corners."

Conner won yachting's top prize in Australia last year and planned to defend it in 1991 in traditional 12-meter yachts. But Fay, citing long-neglected rules of the 100-year-old Cup Deed of Gift, won in court the right to a two-boat match this September in huge yachts of a size not seen in Cup racing in 50 years.

That match now appears headed for disaster. Conner's people plan to build a multi-hull boat, which would be a mismatch against the mono-hull Fay is building. And Conner, citing his rights under the Deed, refuses to name a venue until 90 days before the event, leaving the New Zealanders helpless to tailor their boat to conditions.

Fay says under the rules, Conner must bring a mono-hull and race in his home waters off San Diego, and will press his case in court.

Against this ugly backdrop comes Conner's deal, which even New Zealander Bruce Farr found a glimmer of hope in.

"It's not a balanced deal," said Farr, Fay's yacht designer and a key strategist, "but it does appear there are people in San Diego that really want a decent outcome, and that's refreshing."

The proposal calls for a multinational regatta starting in the early spring of 1990 in a new class of modern, lightweight, fast vessels built to standards devised by Farr, with the advice and consent of Conner's design chief, John Marshall, Farr having the final say.

Seventy-foot-waterline boats were discussed, bigger than traditional 12 meters but not as prohibitively large and expensive as the 90-foot-waterline challenger Fay is building.

The proposal would let in challengers from Australia, England, Japan, France and other nations angry that under Fay's current challenge, they are locked out.

It would give precious time to Conner, who under the present plan must build and learn to sail an unfamiliar yacht in less than eight months.

And it might put the America's Cup back on track as an international event worthy of the world attention it drew when Conner won it in Australia.

But what would it do for New Zealand? Not much, said Farr. "It's asking Michael Fay to give up any advantage he has and spend another $20 to $30 million to go to a contest he clearly has less chance of winning."

And, Farr said, it would also mean discarding the 90-foot-waterline challenger Fay spent millions to build.

Nonetheless, Fay reportedly was pondering the proposal until Conner's people announced in a news conference Friday their intention to go ahead and build two multi-hulls for the September match, in case no compromise is reached.

That infuriated Fay, who issued a terse statement: "We were ready to seriously discuss . . . issues," he said, but "this action by Sail America disposes of the agenda. We are now back in our respective corners."