THE WAR BETWEEN BRITAIN AND ARgentina for control of rugged islands in the bitter South Atlantic ended 13 years ago, but plenty of bitter feelings linger. Last week London and Buenos Aires tried to put aside those resentments to get at the oil riches that may lie beneath the waters around the disputed islands that the Argentines call the Malvinas and the British call the Falklands. It didn't quite work. The deal signed at U.N. headquarters in New York City and intended to allow both sides to explore for offshore petroleum instead touched off a new round of diplomatic sniping between the former adversaries and raised a furor among nationalist Argentines.

The pact was hammered out over 10 months at a series of secret meetings. It creates a joint commission to oversee oil and gas exploration by interested companies. An agreement still under negotiation provides for a 50%-50% division of revenues from oil and gas dredged up on the western side of the islands toward the Argentine coast, and a roughly 75%-25% split in royalties and fees-in favor of Britain-in the South Atlantic seas to the east of the archipelago. Oil-industry surveyors speculate that the Falklands seabeds may harbor more crude oil than all of the North Sea-an estimated 24 billion barrels in British waters alone.

The joint declaration was also supposed to allow diplomats to explore for additional reservoirs of Anglo-Argentine datente. "This agreement will allow relations to continue at a good level as well as bring economic benefits," declared Argentine Foreign Minister Guido Di Tella at the U.N. ceremonies. In effect, it was a capstone for the diplomatic efforts of President Carlos Saul Menem, who re-established relations with Whitehall in 1990, and has been trying to cultivate good feeling between the two nations ever since. British Foreign Secretary Malcolm Rifkind called the pact "an excellent deal for the Falkland Islands."

But the agreement was also bound to incite controversy. Two weeks ago, Menem proclaimed that the accord would be "the first real, legal step forward in Argentina's permanent struggle to regain sovereignty" over the Malvinas, which have been claimed by both Buenos Aires and London since 1833. "He would say that, wouldn't he?" snapped a spokesman for the Foreign Secretary in London. "The sovereignty of the islands has been fully protected under the agreement." In fact, the accord goes to great pains to point out that the oil deal does nothing to diminish either country's historic claims in the region, and each side issued a separate declaration that reiterated the message.

Menem had a good reason to make his statement: an anticipated political pummeling from nationalists and the opposition Radical Civic Union. Critics argued that Menem should have insisted that the British bargain on sovereignty before he gave them any oil rights. That position conveniently ignored British occupation of the islands. Nonetheless, a retired Argentine Rear Admiral, Carlos Alberto Busser, complained in the daily La Nacion that "Great Britain will refuse to negotiate or discuss sovereignty, at least until the last drop of oil or the final cubic meter of gas has been extracted."

Back in London, Prime Minister John Major's Conservative government seemed to have full public support for the oil agreement. The main concern was that the Falklands remain British; the bonus is the islanders' offer to repay the mother country some of the billions of dollars it has expended on the defense of the islands should they find oil. Britain also had two more immediate goals: to avoid jurisdictional battles over oil fields that straddle areas under Falklands and Argentine control; and to encourage Argentina to allow construction of oil storage and refining facilities on the Patagonian coast. The Buenos Aires government, battling against recession and 19% unemployment, readily saw the wisdom in that.

Now that a pact has been struck, oil exploration is expected to move at a brisk pace. The British and Argentine governments will set up offices in London and Houston in the next two weeks to begin taking bids from would-be prospectors. Drilling could begin by late 1996. And if geologists' estimates are correct, Falklands, or Malvinas, oil could be flooding the holds of tanker ships by the year 2000.

--Reported by Michael Brunton/London and Kaitlin Quistgard/Buenos Aires