SAN JOSE, Costa Rica--President Bush sat down with Latin American leaders yesterday for a celebration of democracy, but the occasion was marred by word that Nicaraguan President Daniel Ortega had decided to end a ceasefire with the Contra rebels.

Earlier, Bush and Ortega had exchanged what the White House termed a "friendly" handshake before joining the other leaders gathered to celebrate a century of democracy in Costa Rica.

Secretary of State James A. Baker III said Ortega had made no mention of his reported plans during more than three hours of talks with leaders of 16 North and South American countries that focused on drugs, Latin American debt and eagerness to see Panama's Manuel Antonio Noriega removed from power.

"Maybe if he does intend to do that, he was too ashamed to bring it up with the other heads of state in attendance," Baker said. "But certainly it would be a step backward in the peace process."

Salvadoran President Alfredo Cristiani said Ortega's decision, announced by his spokesperson, "is a serious blow to the Central American peace plan."

Ortega said he would talk about his decision today. His spokesperson said the Nicaraguan president had decided to end the 20-month ceasefire because of stepped-up attacks by the rebels against government troops.

Word of Ortega's decision spread throughout the delegations as the leaders turned their attention from closed-door diplomacy to an evening of dining and socializing. The two-day Costa Rican conference ends today with the dedication of a plaza marking 100 years of democratic government.

After meeting with Bush earlier, Ortega had told reporters, "I told President Bush that my government supports the electoral process and that we are working for peace in Nicaragua."

Bush arrived in this capital to cheers when he declared, "I believe we can create here in the Americas the world's first completely democratic hemisphere."

An extraordinary security force--4000 strong--was deployed to protect the leaders at the two-day "celebration of democracy" arranged by Costa Rica's President Oscar Arias.

The Secret Service imported a two-inch-thick, 75-foot-long sheet of bulletproof glass to place in front of the National Museum for today's inauguration of Democracy Plaza in order to protect Bush, Colombian President Virgilio Barco and the others. Barco's life has been threatened by drug barons in his country.

"We must do away with all the dictatorships in America because there will be no peace among us while even one of them remains," Arias said in welcoming his guests.

"There can be no tranquility for our people when one government lends itself to hiding corruption and distributing drugs," he said in an apparent reference to Panama, whose leaders were not invited to attend.

Bush and Ortega traded barbed comments from afar before the face-to-face meeting, and the president made a point of giving Nicaraguan opposition candidate Violeta Chamorro a kiss when they met. She was an invited guest at Arias' diplomatic conference, and Bush was holding a coffee for her and Panamanian political figure Guillermo Endera today to underscore his opposition to the two governments they are battling.

For his part, Ortega said Bush was "always trying to trample on Nicaragua."

Bush began his journey saying, "Today there are only a few lonely holdouts against the sweep of democracy through this hemisphere."

The heads of state were seated around a long table stretching the length of a room for their two working sessions; Bush and Ortega were seven seats apart. Also on the schedule was a luncheon and black-tie dinner at the downtown National Theater.

Bush arrived to a bear hug from Arias, and officials announced a tentative agreement that will allow Costa Rica to reduce its $4.5 billion foreign debt burden by $1 billion. Arias said the agreement would reduce debt service by two-thirds.

Arias profusely thanked the United States for its help in achieving "the best gift we could possibly make to future generations of Costa Ricans."

The last comparable meeting of the Western Hemisphere's leaders took place in 1967 in Punta del Este, Uruguay, attended by President Lyndon B. Johnson and 19 others.