Israeli Prime Minister Menahem Begin today defended his government's decision to equalize social services for the inhabitants of the occupied West Bank and the Gaza Strip with those of Israeli citizen on humanitarian grounds, and said he expects no adverse reaction from the United States.

The decision, made by the Cabinet yesterday, drew criticism, however, from the opposition Labor Party and the mayor of Gaza and mixed reaction from the Israeli press.

[State Department spokesman Hodding Carter said the Washington that the State Department was not prepared to comment on the Israeli move and no analysis had yet been made of the legal implications.]

While critics said the move appears to be a step toward annexation of the two occupied territories, seized by Israel in the 1967 war. Begin called it a decision that "every man who believes in human progress and justice should hail."

He denied that the move had anything to do with annexation, calling it "just government that would like to provide justice for all."

Former Health Minister Victor Shamtov of the opposition Labor alignment, expressed the fears of many Arabs and Israelis, saying that he considers the move dangerous as a step toward annexation.

The Labor Party, however, is split over just how to react to Begin's move. Many Labor members do not want to come out against equal treatment for the Arabs in the occupied territories as it might appear that they are in favor of inequality and such things as child labor, which is tolerated in the occupied territories but not in Israel.

The independent newspaper Maariv said that "improvement of living conditions in areas that have been under Israeli rule for 10 years is in the nature of a positive policy regardless of what decision is eventually taken regarding the area's political fate."

The independent daily Haaretz pointed out that the government's denial that politics had been involved in the decision was not altogether true because the Arabs living in the occupied territories on the Golan Heights and the SInai Peninsula areas in which Israel has expressed a willingness to return seized territories were not included. If the plan were truly humanitarian, it said, all the Arabs living under Israeli military occupation would have been included.

Mayor Rashe Eshawah of Gaza said the decision amounts to a denial of the rights of the people as Palestinians and called it a move toward annexation.

Mayor Fahed Kawasmeh of Hebron, on the West Bank said, however, that the step would be positive if it was made solely on humanitarian grounds, but added that he would oppose any steps towards annexation.

A telephone samoling of businessmen on the West Bank indicated that the Arabs are afraid that Israel will increase their taxes to pay for the changes and that such taxation without representation would lead to further trouble in a the occupied territories.

Until there is more discussion and planning on how the government intends to organize and above all finance such a plan, however, there is doubt in the minds of Arabs and Israel intends to be in charge of the West Bank and Gaza for a very long time.

"The equalization of services is not something that happens overnight," the officials said, because it means" more schools hospitals, more everything and it will cost a great deal of money. It would take many years to implement."

Although Begin said today that he does not think it will be necessary to raise the taxes of West Bank and Gaza residents, which are based on old Jordanian and Egyptian tax scales, no one has yet explained how Israel intends to pay for such a program. The Cabinet left the details to be worked out later.

The previous Labor government took the position that the West Bank and Gaza would not be incorporated into Israel, except for East Jerusalem, so that parts of these occupied territories could be given back to the Arabs in exchange for peace.

Begin is government takes the position that the West Bank and Gaza should never be returned to Arab control, but it has said it would not extend Israeli law to the territories while negotiations with the Arabs were going on.

Last month, following his visit to Washington. Begin legalized three previously illegal Jewish settlements in the West Bank. That move was condemned by the United States as an obstacle to peace.

The Palestinian commando movement said in Beirut that it will step up military operations inside Israel in response to what it sees as Israeli plans to annex the West Bank and Gaza Strip.

The Israeli government announced that Begin will make a state visit this month to Romania, the only Communist country with which it has diplomatic relations.

Israel began calling up thousands of armed forces reservists in the second public mobilization exercise in two months.