Israel today stopped short of rejecting the suggestion of Egyptian President Anwar Sadat that a Palestinian-American professor represent the Palestinians at a reconvened Geneva conference, but made clear its preference for a Palestinian who is a resident of the occupied territories.

"We are students. We don't yet know who is the professor." Prime Minister Menachem Begin told reporters after today's Cabinet meeting.

"You know very well that we have our attitude towards participation in the Geneva conference and we shall stand by it. But if it comes to a concrete proposal . . . we must first hear the name in order to take a decision.

Yesterday, according to nes reports, Sadat said that he had the approval of the PLO's Yasser Arafat for a proposal that an as yet unnamed Palestinian American professor represent the Palestinians at Geneva.

Foreign Minister Moshe Dayan, according to a Foreign Office spokesman, briefed the Cabinet, saying that Israel would not accept a representative of the PLO, whether a permanent or temporary resident of the United States or of any other county. Israel's position has been that a Palestinian representative might have PLO sympathies.

"We will not look into their souls," Israelis have said, but he cannot be designated by the PLO or claim to represent the PLO.

What Israel wants is a "true representative" of the inhabitants of the occupied West Bank and Gaza Strip because, as Dayan explained, the subject of the talks will be coexistence. Sources said, however, that Israel was not rejecting any individual because none has been proposed.

Last week's exchange via the media between Sadat and Begin - in which Sadat said he would be willing to address the Israeli Knesset (Parliament) - was the main topic discussed at today's Cabinet meeting. Begin said he plans to propose to the Knesset on Tuesday that Sadat be free to address the Parliament should be accept Begin's formal invitation to visit Jerusalem. Begin extended the invitation yesterday.

Dayan and the Foreign Office said after the Cabinet meeting, however, that a visit by Sadat could not replace a formal meeting at Geneva where issues could be negotiated with all Israel's Arab neighbors.

There is a great deal of chimera, propagonda and public relations in all the talk about Sadat coming to Jerusalem to negotiate personally with the Israelis, and Begin is playing the game for all it is worth. Few Israelis believe that Sadat is about to show up on their doorstep, and even Begin told reporters today that Sadat's gesture should not be exaggerated.

There is a positive value, however, in Israel's view, in what Sadat has said even if he does not come to Jerusalem. As Begin explained it today, every prime minister of Israel has said he or she was willing to meet Arab leaders anywhere to discuss peace. Sadat's statement last week that he was willing to come to Jerusalem was the first time an Arab leader had made such a statement. This in itself is a change for the good, as far as Israel is concerned, even if nothing comes of it.

As former Foreign Minister Abba Eban said in an interview with Iaraeli radio, "Even if hostile elements in the Arab world prevent the meeting from taking place, it will be impossible to efface from the tablets of history the word that have been spoken [by Sadat]: 'Israel, Knesset, Parliaments, Jerusalem, a willingness to talk.' This breaks the ideological ice that has paralyzed any kind of movement in the official national sentiment (of Egypt) for so many years.These words cannot be changed."

It has been a favorite theme of Israelis that Sadat made dove-like noises for foreign consumption but to his own people the message was still one of hate and hostility towards Israel. That Sadat's statement about visiting Jerusalem, and Begin's response, were broadcasting to the Egyptian people shatters that Israeli conception.

There is always the hope here which Begin's broadcast address to Egypt last week cleverly exploited, the Egypt can be wooed away from a united Arab position to make a deal with Israel.

Cairo has officially warned that if Begin thinks he can divide the Arabs he is "taking the wrong road."

Israelis are in general delighted that their prime minister can match Sadat when it comes to pulling rabbits out to hats.

As one Israeli reporter said. "At last we have a prime minister that understands the theatrical dynamics of politics."

It was often felt during the previous government of Yitzhak Rabin that the silver-tongued Sadat was always appearing to make great strides towards peace and flexibility in the eyes of the world, while Israel was left snarling in defensive reaction. Many of Israel's friends abroad were warning that Israel was losing the propoganda and public relations battle to the Egyptians.

When Begin came to power in the spring, he and his foreign minister, Moshe Dayan, were determined to reverse this trend.

Last week, Israel was faced with a major statement from Sadat saying, of all things, that he would actually visit not only Israel but Jerusalem, which not even the United States recognizes as Israel's official capital, at least not formally.

Begin went on the propoganda offensive immediately with his emotional broadcast message to the "citizens of Egypt" offering peace an friendship.

Begin's statement distracted attestion from the main issues of peaces such as the Palestinian issue and Israeli withdrawal from occupied territories serving to match the propoganda impact of Sadat's proposal.

"It may be all done, with mirrors, one Israeli obseved, "but you have to admit it will go down like a million dollars in the United States." In face Begin's message to the Egyptians was broadcast in English before it was broadcast in Arabic and the ammuntion given to Israel's friends in the United States is an important factor.