MADISON, Wis. (AP) _ University of Wisconsin-Madison officials reversed a decision to cancel an advertisement for an abortion clinic in a student handbook after a closed meeting with their legal staff.

''In retrospect, we looked at it again and said we didn't want to make that decision,'' said Paul Ginsberg, dean of students.

''There was still a great deal of uncertainty about the principles involved and there was a sense of unfairness involving people who had submitted the ads in good faith,'' Ginsberg said after the decision Thursday.

A half-page ad for the Madison Abortion Clinic was scheduled to run in the 100-page, guide to the university and to Madison. The guide, called Wheat and Chaff, is published and distributed by the university's Campus Assistance Center.

Editor Geoff Merrill said center Director Steve Saffian told him to kill the ad Tuesday, one day before layouts were to go to the printer. Saffian said Ginsberg directed him to remove the ad.

Ginsberg said UW-Madison Chancellor Irving Shain had approved the order to kill the ad and to cancel ads for the clinic in 1985-86 faculty and student directories.

The issue was ''how some people were perceiving the handbook,'' Ginsberg said, describing it as ''a bible for students to get around this community.''

Stuart Levitan, a law student and president pro tem of the Wisconsin Student Association, called the decision to cancel the ads ''an assault on the integrity of university publications.''

He had said he would seek court action to get the ads reinstated, but said Friday he had dropped those plans.

Ginsberg said the threat of court action was not a factor in the university's decision.

Merrill said he ''reluctantly'' complied with the order, but also pulled a smaller ad for the Pregnancy Counseling Center, which is run by a church- based, anti-abortion group. Reinstating the ads, which he had replaced with photographs, would not cause any large problems, he said.

Ginsberg said university officials will continue discussions on whether ads should appear in university publications and whether guidelines should be developed.

Alcohol and tobacco ads are already banned from university publications, he said.