The Israeli Cabinet tonight unanimously approved the proposal worked out with U.S. officials last week for resuming the Geneva peace conference.

Approval of the proposal, which has not yet been made public in detail, is intended here to demonstrate Israel's flexibility in cooperating with the Carter administration to overcome the procedural problems of reconvening the Geneva talks.

While Israeli approval improves chances that the talks will be resumed, the proposal has not yet been accepted by the Arab countries and there are indications that portions of it may not be.

Last week, U.S. sources in New York characterized the initial response from Egypt, Jordan and Syria as "constructive." Since then, however, Syria has said it would not go to Geneva unless the Palestine Liberation Organization is represented there - a demand that Israel flatly opposes.

A State Department spokesman said in Washington tonight that the United States welcomed the Israeli Cabinet decision and would be in touch with the Arab countries soon to determine the next steps.

The decision came at the end of a five-hour meeting, the longest for the Cabinet of Prime Minister Menahem Begin since it took office four months ago.

Begin, looking pale and tired, was released from a hospital this morning after 10 days of rest and treatment for an inflammation of his heart membrane that doctors said was brought on by overwork.

Foreign Minister Moshe Dayan, who had worked out the proposal with Secretary of State Cyrus Vance and President Carter last week, returned to Israel today to defend the working paper against expected opposition from hawkish members of Begin's Likud Party.

Government spokesman Aryeh Naor said there had been no private agreements between Israel and the United States outside the framework of the proposal itself. But he said the government did not intend to make the contents of the proposal public in the hopes that this would "better promote the chances of the Geneva conference."

He said the Israeli government hoped that steps to resume the conference would be taken "very soon. We want the negotiation process and discussion," he said. "We want, above all, the peace treaty with our neighbors."

Naor, Begin and Dayan all refused to discuss what went on at the meeting. It is understood, however, that Dayan's presentation and explanation took nearly two hours and that the rest of the time was spent in discussion and debate.

If serious opposition was expressed, spokesman Naor would not admit it. He said that the unanimous decision had been made without a formal vote.

The length of the session, however, suggests that Dayan was subjected to some hard questioning by the more hawkish members of the Cabinet.

Although the details of the proposal have not been published, it is understood that it calls for inclusion of Palestinians in a joint Arab delegation during a ceremonial opening session and inclusion of Palestinians in the Jordanian and Egyptian delegations during working discussions on refugees, the West Bank and Gaza.

Israel still steadfastly refuses to talk with the PLO but the working paper's inclusion of Palestinian representation in any form is considered here to be a major concession. Whether or not the Arabs accept the joint Israeli-American working paper. Israel now feels that the ball is squarely in the Arab court.

Although Dayan has made it very clear, and spokesman Naor confirmed tonight, that Israel would not accept members of the PLO or allow Palestinians designated by the PLO to participate, there is apprehension within both the government and the opposition that somehow the PLO will be sneaked through the back door into the Geneva conference.

Dayan told reporters on his arrival at Ben Gurion Airport today that he considered it "a good paper if we want to go to Geneva. If we don't want to go to Geneva then we can be disappointed with everything, but if we do want to go to Geneva with the Arabs and having their view in mind as well as taking care of our own interests, then I think this is a good paper."

He said that Israel's insistence on basing the conference on U.N. Resolution 242, which allows no additional parties without the consent of all previous participants, effectively blocked the PLO and if the Arabs insisted on PLO representation in Geneva "then there will be no Geneva."

The usually authoritative Haaretz newspaper, in a dispatch from New York, said today that the working paper, which took nearly three weeks to formulate, contained only 17 lines divided into six clauses:

The Arabs will be represented by a joint delegation including Palestinians in the opening session.

Four working groups between Israel and its four neighbors will be established.

The question of the West Bank and Gaza will be discussed by a group in which Israel, Egypt, Jordan and the Palestinians will participate.

The refugee question will be discussed in a manner to be agreed upon by the sides.

The conference will be run according to U.N. Resolutions 242 and 338, the resolutions that attempted to formulate a peace settlement after the 1967 and 1973 wars.

Any change requires the agreement of all parties.

Haaretz said Israel had rejected two clauses that the United States wanted to include. The clauses would have called for discussion of a Palestinian entity such as a homeland and the participation of low-level PLO members. Dayan, the paper said, blocked both and secured an agreement with the United States that Israel reserved the right to block any attempt to include the PLO at Geneva or to discuss a Palestinian entity.