I think your feeling is right, it means “to hug”. Looking in “Trésor de la langue française”, the first definition of “embrasser” fits perfectly well the very act of hugging:

Prendre entre ses bras en serrant contre soi.

While looking in more popular sources this meaning is considered litterary:

1. Donner des baisers à quelqu’un : Un père qui embrasse ses enfants.
2. Littéraire. Prendre, tenir entre ses bras quelqu’un ou quelque chose ; étreindre : Il embrassait le réverbère pour éviter de tomber.

Nowadays, in common speach, when talking about people interracting with each other, I also think this would be understood as kissing by a huge majority of people. At least in Belgium and I guess France also.

I strongly doubt that was just a hug.

Embrasser was already used to mean to kiss since a couple of centuries because of the double meaning of baiser so there is absolutely no way for jamais personne ne l’avait baisée comme ça to have been used here.

There are several hints suggesting a sensual kiss:

1. Adrien caresses Blanche’s bare back
2. Blanche is feeling/smelling Adrien’s mustache
3. After the event, she thinks someone finally loves her
4. Adrien apologizes

Here is what Littré wrote in 1873-1874 in his embrasser definition that shows that 70 years before Aragon’s writing, the shift from hug to kiss was already observed

On lit parfois dans les auteurs contemporains : il lui embrasse la main. C’est mal parler ; il faut dire : il lui baise la main. Embrasser c’est non appliquer la bouche, mais serrer dans les bras.