While Isareli Prime Minister Menachem Begin was preparing for his first meeting with President Carter in Washington, his government here was weathering its first major test on the homefront.

Initial public reaction to the government's austerity program announced last night, including cuts in defense spending a 25 per cent increase in the price of gasoline and a [WORD ILLEGIBLE]in subsidies on essential food items, was relatively mild.

Although the Histadrut, the powerful labor federation, was apparently resentful that it had not been consulted and called for a one-hour work stoppage in protest against the move, many persons said that the austerity measures were unavoidable.

Spokesman for the government did not hide the fact that the new steps were timed to coincide with Begin's visit during which the level of U.S. financial aid to Israel will be discussed.

It is good that the Americans realize that we are not only making requests of them but are trying to put our house in order first. The ($140 million)cut in defense expenditure also emphasizes this government's commitment for peace," said Deputy Finance Minister Yehezkel Flumin.

The fact that reaction has been relatively mild is seen as a boost to Begin. It may show Washington that his newly organized right-wing government is not as weak as had been assumed.

The $140 million reduction in the defense budget is the largest single cut but an additional $100 million has been trimmed from other ministries. Subsidies on bread, milk products, meat, eggs, cooking oil and public transportation were cut, making it necessary to raise the prices of all these items by about 25 per cent.

The budget cuts and the reduction in subsidies taken together will bring the total budget down to $12.4 billion. Government spokesman say the latest step will raise the consumer price index by about 5 per cent.

Members of the Labor Party which was recently voted out of office admitted today that had they remained in power theywould have probably been forced to take similar steps to hold down the runaway inflation. They added however, that they would have [WORD ILLEGIBLE] sure that a lesser part of the burden fell on the lower middle class.

Large families as well as persons on relief will be compensated directly by the government for the price increase.

Salaried workers will receive only partial compensation through escalator clauses in their wage contracts. For average Israelis, however, the new measures may mean an additional tightening of the belt.

Last year, prices in Israel rose by 30 per cent with the austerity measures, it is hoped that inflation can be held this year to 27 per cent.

Members of the labor party, which was recently voted out of office, admitted today that they remained in power they would have probably feen forced to take similar steps to hold down the runaway inflation. They added however, that they have made sure that a lesser part of the burden fell on the lower middle class.

Large families as well as persons on relief will be compensated directly by the government for the price increase. Salaried workers will receive only partial compensation through the escalator clauses in their wage contracts. For average Israelis, however, the new measures may mean additional tightening of the belt.

Last year, prices in Israel rose by 33 per cent. With the austerity measures. It is now hoped that inflation can be held this year to 27 per cent.