A DECISION by three leading British publishers to participate in a book fair hosted by the Iranian government has split the literary world.

Authors have called for a boycott of the fair because of the death threats against Salman Rushdie, author of The Satanic Verses, and many Publishers have already withdrawn. However, Oxford University Press, Butterworth's and Routledge & Kegan Paul have decided to accept invitations. Sir Roger Elliott, chief executive of OUP, said last night: "We are interested in the free circulation of books, whatever the regime."

His decision was condemned by Lady Antonia Fraser, president of the English branch of PEN, the international writers' organisation. "It is quite amazing that any British publisher should even think of going to this," she said. Paddy Ashdown, the Democrats' leader, who has been in contact with Rushdie since the author went into hiding in February, said: "The Ayatollah will use their presence as an example of Western firms bowing before his summons."

All American publishers invited by Tehran have pulled out over the Rushdie affair. The row was intensified by a call last week by the Speaker of Iran's parliament for Palestinians to kill Westerners in revenge for deaths in the Israeli-occupied West Bank. The OUP stance has also upset some of its authors. Elizabeth Longford and A. N. Wilson both said they would contact the company this week to find out why it was participating. "It is extraordinary that OUP is dealing with Tehran, and I will be ensuring it is not selling my work," said Wilson. "British publishers should not go there in the present climate." Lady Longford, whose Oxford Book of Royal Anecdotes was published by OUP last month, said: "I am against anything that would support the persecution of Rushdie. I would not want to contribute to anything that might be against his interests."

Gordon Graham, chairman of Butterworth's, said it was a question of principle, not commerce. "Iran is not a big market for us. But we believe books should travel everywhere where they are not forbidden; they are a message of hope to people." Ironically, the company was unable to obtain a visa for its British export salesman and is having to send its stock with an Australian representative. Penguin Viking, publisher of The Satanic Verses, last night refused to comment publicly, but it believes that while publishers are free to make their own decisions they should not pretend anything other than profits are involved if dealing with Iran. Last week the Publishers Association voted 117 to five against an official boycott.

Supporters of a ban, led by Louis Baum, editor of The Bookseller and director of a publishing company, argued in vain that the event was being organised, and invitations issued, by the same Ministry of Culture and Islamic Guidance which was promoting Khomeini's edicts against Rushdie. PEN, of which Rushdie is a member, last week sent a letter of condemnation to the Publishers Association. Rushdie's plight and the trade fair will also be discussed at the annual congress of the international body this week in Maastricht, The Netherlands. Last month 1,000 of the world's leading authors, poets and playwrights signed a declaration pledging solidarity with Rushdie and his publisher. Iran is not an important outlet for British books. Butterworth's has less than £10.000 worth of business there annually, but the OUP has annual sales in six figures, mostly of student textbooks.

Very early in the Salman Rushdie affair, Britain's Publishers Association decided not to engage in undignified "shouting from rooftops," as a spokesman put it. It was true that a British writer and his British publishers were under death threat because the Ayatollah Ruhollah Khomeini was displeased by Mr. Rushdie's novel The Satanic Verses. But the Association was concerned "not to aggravate unnecessarily a deeply unwelcome situation by fueling it to no constructive purpose."

That seemed dismayingly dainty, but dainty is not the half of it. It appears that some British publishers, including the magisterial Oxford University Press, plan to take part in next month's Tehran book fair, displaying their scientific works. Joining them is an American company, McGraw-Hill, whose titles also will be on display despite a plea from Viking Penguin, Mr. Rushdie's publisher, that other firms boycott the event. (Another American publisher, John Wiley & Sons, belatedly dissociated itself from the fair.)

As Oxford explained, "We deliberated about it quite deeply but felt it certainly wasn't in our interests, or Iran's as a whole, to stay away." Butterworth, a British scientific publisher, had this view: "Our responsibilities are to individuals who want to read books, not to governments." McGraw-Hill reached for high ground: "There should be no sanction on knowledge." So did Wiley: "One doesn't fight censorship with censorship." No, and one doesn't fight murderous censorship with surrender. What are the mullahs to conclude but that the publishers are willing to sacrifice free expression on the altar of business as usual, and that selling textbooks matters more to them than does solidarity with colleagues who are threatened with death?

Sound arguments exist for using book fairs to promote values of tolerance and free speech in countries given to censorship. But Iran's offense transcends censorship. Its leaders have been baying for Mr Rushdie's blood - an intolerable outlaw offense against international comity. If publishers cannot or will not stick together on a matter so fundamental, then all authors - and freedom of expression - are in trouble. Prime Minister Thatcher correctly recalled her ambassador from Tehran following the threats. Great publishing houses, however, will lend their prestige and wares to an obscure book fair. They seem unwilling to make minimal sacrifice for free speech and civilized behavior. For shame.