HOUSTON--Leaders of the world's seven leading industrial democracies gathered here in President Bush's hometown yesterday for the 16th annual meeting of the "G-7" summit. The leaders are expected to address issues of agricultural tariffs and aid to the Soviet Union during the three-day summit.

In an arrival ceremony at Houston's Rice University yesterday, Bush painted an optimistic picture for a meeting that experts say is likely to reveal significant differences in the attitudes of member nations.

"These economic summits have become framework for frank and constructive dialogue," Bush told the other leaders in the 94-degree weather. "A dialogue for progress that I believe will be advanced greatly in the next three days."

"And together we're called upon as allies and as friends to work toward decisions here in Houston that will bring a new stability and prosperity to the world, by tapping the power and energy of free wills and free markets."

Bush's mention of free markets foreshadowed a growing concern that members of the European Community would resist his efforts to reduce agricultural subsidies during the Uraguay Round of negotiations on the General Agreement on Trade and Tariffs.

Administration officials, several of whom made pitches for free trade yesterday, acknowledged that it would be difficult to reach an agreement on agricultural trade issues with the European community.

"Our plea to our European colleagues is that they engage in this process and become effectively involved in the Uruguay Round negotiations on agriculture," said Secretary of Agriculture Clayton Yeatter. "And there hasn't been much of that, thus far."

If any issue threatened to divide the leaders more than the farm subsidies, it was the proposal to provide joint financial aid to the Soviet Union.

In a reaffirmation of earlier policy, Bush Administration officials said that the U.S. would not send more aid until the Soviets take more definite steps toward building a market economy. The Administration officials added, however, that all the nations at the summit need not follow the same policy on this matter.

"In his capacity as chairman of this year's summit, the President has received a letter from President Gorbachev outlining the steps the Soviet Union, itself, has taken towards economic reform," White House Chief of Staff John Sununu said at a briefing in the Brown Convention Center.

"And in his letter, President Gorbachev noted that the Soviet Union needs additional assistance in terms of technical aid and credits."

"The United States has long maintained that the Soviets have yet to undertake strong reforms geared towards a market economy and that it would not be beneficial to have an infusion of capital into a system that is not geared to utilizing that capital," said Sununu.

Sununu added that the United States cannot begin aiding the Soviets until they stop funding enemies of the United States such as Cuba.

"Certainly, the assistance sent by the Soviets to Cuba and the spending within the Soviet Union itself on its own defense structure, obviously it's felt by the United States that these funds can be better used domestically by the Soviets to reform their own economy," Sununu said.

Fitzwater said yesterday that although the United States is willing to provide technical assistance to the Soviet Union, it will resist attempts by the other industrialized nations to funnel funds to the troubled nation.