OPTIMISM RISING FOR BUDGET DEAL : GAP BETWEEN CLINTON, GOP SPENDING POSITIONS NARROWING.

Byline: Richard W. Stevenson The New York Times

Two years ago, the Republicans proposed cutting $270 billion from the growth of Medicare spending over seven years, setting off a bitter political battle that has poisoned efforts to balance the federal budget ever since.

But as the Clinton administration and the Republican leadership in Congress prepare for yet another effort to eliminate the deficit by 2002, their differences on Medicare - and on a number of other contentious issues - have narrowed sufficiently so that both sides for the first time are expressing cautious optimism that they can reach a deal on a balanced budget this year.

``The groundwork has been laid pretty well,'' Sen. Trent Lott of Mississippi, the Republican majority leader, said in a television interview Thursday.

President Clinton said Wednesday that the odds of getting an agreement were ``quite high.'' Friday, the Democratic leader in the Senate, Tom Daschle of South Dakota, said Congress and the White House ``can agree by spring on a plan to end nearly three decades of red ink.''

The remaining differences, over ideological approaches to the role of government, as well as over spending levels, are big enough that neither side is taking a deal for granted, and neither is likely to eschew partisan rhetoric as it maneuvers for a negotiating advantage. Clinton is to send his budget proposals to Congress on Feb. 6, and the Republicans will flesh out their own proposals over the next month.

``I don't think the differences have narrowed as much as it might appear on the surface,'' said a Democratic congressional aide involved in the budget process. ``We're still in a honeymoon phase, and no one wants to appear not to be cooperative. But as we move forward, positions will harden.''

On all the major issues, though, Democrats and Republicans have ground each others' positions down enough over the past two years that they start off within shouting distance of one another.

On Medicare, the administration said the week before last that its budget proposal would call for $138 billion in spending reductions over six years, just $20 billion less than a comparable Republican proposal last year.

The gap could widen when the Republicans complete their new plan. But already, the focus of the debate over Medicare has shifted from the scale of the spending cuts to narrower issues, such as whether the administration's plan fairly compensates health maintenance organizations and whether it relies too much on accounting gimmicks.

Clinton has said he would keep an open mind about a proposal from some Republicans to increase Medicare premiums for wealthy retirees. But after the political battering they took over Medicare last year, some Republicans said they were reluctant to push for such an increase.

The Republicans have consistently insisted on far larger tax cuts than the Democrats have been willing to accept. But the administration's own tax-cutting proposals expanded during the presidential campaign, and Clinton said last week that he could ``envision being more flexible'' on Republican demands for a reduction in the tax on capital gains, the issue that has most clearly divided the two sides.

Republicans, in turn, have promised to consider Clinton's proposals for tax deductions and credits for college tuition.

Senate Republicans the week before last proposed a tax-cut package of $193 billion over five years. The administration's tax-cutting proposal in its coming budget is expected to be valued at $100 billion to $130 billion.

Clinton has already said he would call for increases in spending on education, welfare and other domestic programs, and this weekend he proposed an expansion of the federal food safety program. Republicans are certain to fight all or most of his proposals.

But the Republicans are no longer putting much firepower behind their calls to eliminate or scale back the Education, Commerce and Energy departments, and after cutting overall discretionary spending on domestic programs in 1995 by more than $20 billion, to $490 billion, the Republicans voted to increase it last year to $503 billion.

After squabbling over the accuracy of the economic and technical assumptions underlying their competing budget plans, the White House and the Republicans in Congress have edged closer together, particularly in their estimates of the size of the deficit they must eliminate to balance the budget by 2002.

The administration foresees needing to close a deficit of about $100 billion in 2002. The Congressional Budget Office's estimate is about $150 billion.

``If you simply look at the numbers, at the size of the problem and at the progress they made in 1995 and 1996, you'd have to say the stars are in alignment,'' said Van Doorn Ooms, a former policy director at the House Budget Committee.

Indeed, for all the praise that Clinton's new Medicare proposals won from Republicans earlier this month, Sen. Phil Gramm, R-Texas, later excoriated one component of the plan that would shift spending on home health care from one Medicare account to another as part of a short-term fix for Medicare's financial problems.

``The president ought to be ashamed,'' Gramm said. ``This is a proposal that says, `I am content to deceive the American people.' ''

But whether it is Medicare or some other budget category, neither side has been willing to embrace the deep, sustained cuts that would yield long-term fiscal stability, or to cancel or delay tax cuts to make eliminating the deficit easier.