SANTIAGO, Chile (AP) _ The indictments of two former secret police chiefs in the 1976 slaying of former ambassador Orlando Letelier in Washington signal yet another step in improving ties with the United States.

The Supreme Court on Monday ordered retired army Gen. Manuel Contreras and Brig. Gen. Pedro Espinoza to face trial ''as authors of the crime of homicide'' in the death of the outspoken foe of Chile's former military rule.

Letelier served as a Cabinet minister and ambassador to Washington under the Socialist government of the late President Salvador Allende, who died in a bloody 1973 military overthrow led by rightist Gen. Augusto Pinochet.

The 14 1/2 -page indictment, released by investigating Justice Adolfo Banados, alleged that Contreras and Espinoza plotted the assassination and provided false passports for two secret police agents who traveled to the United States.

Letelier and American aide Ronni Moffitt were killed Sept. 21, 1976, when a remote-controlled bomb blew up their car as they rode through downtown Washington.

The killing led to a U.S. arms embargo on Chile that was only lifted last year after Pinochet relinquished the presidency to an elected civilian, Patricio Aylwin.

Contreras and Espinoza were indicted in Washington in 1978 on charges of plotting the murders. But the Supreme Court's refusal under Pinochet to extradite them posed a major irritant in U.S.-Chilean relations.

Acting Foreign Minister Edmuno Vargas said the indictments - the first in the case by a Chilean court - ''restore confidence in our justice system'' and mark another step in newly normalized relations with Washington.

''All the hurdles stemming from the Letelier case have been removed,'' Vargas declared.

There was no immediate comment by the Bush administration.

After succeeding Pinochet 18 months ago, Aylwin promised that his government would do its best to solve the Letelier killing. He asked the courts to reexamine the Letelier case and appoint the special investigative justice.

With bilateral relations improved rapidly, President Bush included Chile on a South American tour last December.

Contreras was director of the feared secret police, known as DINA, under Pinochet. Espinoza was chief of operations of the security agency. Both have repeatedly denied participation in the assassination.

The passports in question bore the aliases Armando Faundez Lyon and Liliana Walker Martinez and were allegedly used by DINA agents Armando Fernandez Larios and Monica Lagos Aguirre to travel to the United States before the killing.

Fernandez Larios, Michael Townley - an American - and two anti-Castro Cuban exiles have served or are serving prison sentences in the United States for their roles in the plot to kill Letelier.

Contreras, although retired from the army, retains the right to be held at a military installation instead of a regular prison. Espinoza, who remains an active officer, was being held at an army base in Santiago, the court said.

Interior Minister Enrique Krauss said the arrest of the two officers should not affect relations between the government and Pinochet, who opposes any action against officers charged with human rights abuses during the 17-year military regime.

''I don't see why this would disturb relations with the army, because it's not the army that is being investigated,'' Krauus told reporters. There was no immediate comment from Pinochet's office.

Pinochet, who remains commander-in-chief of the army, had no immediate reaction.

The Supreme Court last week had rejected a request by Contreras to close the investigation on the grounds that Chile's 15-year statute of limitations in murder cases expired last Saturday.

Local experts say the statute of limitations does not apply in the Letelier case because three new criminal complaints were recently filed against Contreras and Espinoza by the Letelier and Moffitt families.

Shortly after taking office, Aylwin agreed to pay a compensation to the Letelier and Moffitt families. The amount will be set at negotiations beginning Oct. 3 in Washington.

Congressman Juan Pablo Letelier, a son of Letelier, said the indictments ''open a new stage in efforts to bring justice in this case, which interests not only to our family, but to many Chileans as well.''