NICOSIA, Cyprus (AP) _ Iraq, which in 1978 initiated the Arab diplomatic boycott of Egypt, today resumed relations with Cairo, an Iraqi government announcement said.

The announcement was carried by the official Iraqi News Agency, monitored in Nicosia.

A Foreign Ministry announcement said the restoration of ties was effective as of today, and the two sides would exchange ambassadors ''immediately,'' INA said.

Since the ties were formally severed in 1979, Egyptian diplomats operated in Baghdad under the Turkish flag, while Yugoslavia handled Iraqi interests in Cairo.

The statement said the restoration of ties was ''in accordance with the Arab nation's principles and the safeguarding of pan-Arab security and high pan-Arab interests.''