The Israeli government has rejected an International Monetary Fund recommendation that Israel double a planned budget cut of about $1 billion, according to sources here.

Although an IMF team found somewhat more "encouraging developments" in the Israeli economy than Undersecretary of State Allen Wallis did on a recent visit, the international agency expressed concern that any gains in controlling inflation would prove to be only temporary without a deeper budget cut.

The IMF visit was for routine consultation; Israel has not requested financial assistance from the IMF. But it has asked for $800 million in emergency aid from the United States, on top of $2.6 billion in economic and military assistance already committed for fiscal 1985, and $4.05 billion planned for fiscal 1986.

Despite the call for steeper budget cuts and other severe austerity measures, the Israeli government appears to be more pleased with what one official said is the IMF's "more balanced view" than with the gloomier State Department conclusions.

The mission's preliminary report says it has found improvements in the economy since its last visit about a year ago. It cited a better trade balance from more competitive exports and stronger foreign demand, a stronger monetary policy, "and the use of relatively high and flexible interest rates to curb capital outflows."