ISRAEL HAS another intelligence scandal, following the Pollard espionage case. It seems that the Israeli FBI, called the Shin Bet, killed two Palestinian prisoners, who'd been arrested in a bus hijacking, and then covered it up. The attorney general, who was pressing an investigation, was ousted and his successor then circumvented by a political deal in which the two main parties agreed not to poke further into the Shin Bet's deeds. The president preemptively pardoned the head of the security service and three deputies even before they had been investigated, charged or convicted.

Israel's pride is to live in a condition of war and yet to preserve a democratic, humanistic essence. The Shin Bet scandal savages this claim. It is not hard to undertand how a country continually prey to terrorism can be seized by an impulse to strike back. But Israelis insist that they keep that impulse under the restraint of a dedication to the rule of law. This is why, for many Israelis, the cover-up is worse than the killings. The killings are one of those things that can happen in a terrible moment. The cover-up is something that requires connivance by the system, a system that is supposed to deal responsibly with surrenders to terrible moments.

There is a political complication. The Shin Bet scandal occurred, as did the Pollard spying, while Yitzhak Shamir was prime minister. He is currently vice prime minister and, in accordance with an agreement of long standing, is due to take over the No. 1 spot from Shimon Peres in October. The Israeli press suggests that Mr. Shamir, as prime minister, approved the cover-up. Mr. Peres has joined the circle protecting Shin Bet and heading off further inquiry into it. But he is under his Labor Party's fierce pressure to permit an inquiry at least into the part of the affair touching the ''political echelon.'' The ''political echelon'' is something of a euphemism for Yitzhak Shamir, and the question in Israel now is whether the affair will develop in a way that threatens Mr. Shamir's scheduled ''rotation'' into office in the fall.

The dark side of this episode is apparent. It is noteworthy, however, that the murders and cover-up have prompted a wave of revulsion in the Israeli public. Many people are deeply troubled by the spectacle of a politically sanctioned police atrocity. Some see it as a source of embarrassment and pollution to which their society is indefinitely consigned by the enmity of most of its neighbors. Others see it as a condition for which Israel itself has some responsibility by virtue of its failure to do everything it could to make a West Bank peace and thereby to end Israel's state of siege. The political conclusions that Israelis draw from this latest intelligence breach could yet become the most important thing about it.