The instruction was: Create a work of art that both expressed U.S.-Israeli friendship and wouldn't drain the treasury of shekels.

"The prime minister asked me to make something that will be very precious but will not cost money because we cannot spend the money," said Israeli artist Yaacov Agam of Israeli leader Shimon Peres' request for something he could present to the people of the United States.

So Agam printed a simple silk-screen that the financially straitened Israeli government could afford to give not only to House Speaker Thomas P. (Tip) O'Neill Jr. (D-Mass.) and Senate President Pro Tempore Strom Thurmond (R-S.C.), but to almost 1,000 other guests gathered at the Israeli Embassy last night to welcome Peres to Washington.

"This time, we have decided to have a thanksgiving party," said Peres to an audience that included Secretary of State George Shultz as he presented the print to O'Neill.

"We are proud to be friends of the U.S., a country that only her generosity exceeds her power," said Peres, and then held up the print. A revolving plexiglass frame revealed both sides of the paper folded like a fan: a U.S. flag against a rainbow on one side, a Star of David on the other. "No matter how you turn it around, you have the same result, friendship."

Peres' scheduled meetings with President Reagan, Shultz and Defense Secretary Caspar Weinberger come at a time when, assembled guests agreed, relations between the two countries are excellent.

"I think U.S.-Israeli relations are as fundamentally sound as I've seen them in a long time," said Rep. Dan Glickman (D-Kan.).

Peres said the talks on the stalled Middle East peace process will have to examine the role played by the Palestine Liberation Organization in the Achille Lauro incident and the canceled meeting between PLO representatives and high-level members of the British government.

"Their credibility gap became so deep," Peres said, "the latest occasion being their mission to England, where they didn't keep their promise to Mrs. Prime Minister Margaret Thatcher. How can people really trust what they are saying?"

Shultz met privately with Peres before braving the crushing crowd. He then asked Agam to sign his silk-screened party favor, welcomed Peres "at a time when there is lots to think about and lots to talk about," ducked reporters' questions and fled.

The Washington social-political assembly line being what it is, Thurmond got his print in a second shift about 15 minutes later, forcing Peres to repeat his expression of gratitude.

"The people of the United States admire the boldness, the courage, the wisdom . . . of Israel," Thurmond responded before pressing a souvenir key chain into Peres' hand.

And then the real reception began, with Israeli Ambassador Meir Rosenne presenting a long line of guests to the prime minister.

"You must ask the ambassador, he's the boss," said Peres to one woman who asked him to visit a local school during his visit.

"I read your articles with great pleasure," he told columnist Charles Krauthammer.

Sen. Claiborne Pell (D-R.I.) arrived. Sen. Howard Metzenbaum (D-Ohio) arrived.

And Rep. Mel Levine (D-Calif.) finally arrived too. I'm late so I could see the Dodgers lose," he said, and added, "This is a vast improvement on the ninth inning of a Dodgers game."