Foreign Minister Moshe Dayan told leaders of Israel's ruling Likud coalition today that Anwar Sadat's historic visit had brought the Jewish state to a crucial hour of decision.

"The steps it will take in the very near future will decide the fate of the Middle East," Dayan said.

Dayan's remarks seemed to reflect an emerging consensus in Israel today that Jerusalem must attempt to keep the momentum generated by Sadat's trip building by taking a fresh look at the rigid positions it has clung to in the past.

"Sadat has made a new evaluation of israeli policy indispensible," former Foreign Minister Abba Eban said in an interview.

In many ways, Israel seemed in a bit of a daze today as it pondered the ramifications of what Defence Minister Ezer Weizman called a "virtually incomprehensible shift."

"Israel wakes up today like a new bride," a senior member of the Labor Party, Gad Yaakobi, observed. "She knows that something great has happened, but she is not yet sure if she is pregnant."

Weizman and others warned that Israel should not be carried away by "exaggerated emotionalism." Sadat might be right about 70 per cent of the problem being psychological, the newspaper Haaretz said, "but the remaining 30 per cent remains a hard nut to crack."

In addressing a meeting of Knesset members of the ruling Likud coalition, Dayan noted that Sadat "did not come to us with a shopping bag and concrete demands because such demands would have taken on the nature of bilateral talks, which he wanted to avoid."

"Also, he did not ask from us concrete replies." Dayan said, "because they would also have taken on the nature of bilateral negotiations."

Dayan said that the crux of the agreement between Sadat and Prime Minister Menaham Begin was to continue the Momentum.

He was cautious, however, about Israeli concessions noting that those who now demanded concessions in response to the Sadat visit had demanded the same concessions before the visit.

But editorial opinion in Israel's newspapers favored a new flexibility.

"It is Israel now that must make a major step of some sort," said Dayan.

"If Begin is incapable of this, then heavy historic responsibility rests on the moderate and flexible cabinet ministers."

"Sincere negotiations involve flexibility on both sides," said Hatzofeh, the paper of the National Religious Party. "Israel will have to show political initiative as well."

The left-wing Al Hamishmar said that "if the Israeli government will be able to rise above its rigid positions, Sadat's visit will not be a passing episode."

Eban remarked today that Israel's traditional sense of vulnerability -- and its attitudes both on boundaries and the Palestinians -- are "two links" in a chain leading back to the Arabs' traditional inability to accept Israel as a neighbor in the Middle East.

Once Sadat said "then the first link of that chain was broken, Eban said. Therefore the other links, Israel's own attitudes, must now be reconsidered.

The significance of this, Eban said, is that although the substantive problems have not been resolved, the Middle East problem might become like other border conflicts such as the long-running dispute between India and Pakistan -- difficult, but lacking the unique "vehemence" that has marked the Arab-Israeli conflict.

Eban's Labor Party believes in territorial concessions on the West Bank while ruling Likud coalition does not. "We have to find a way to give back most of the West Bank and Gaza with only minor changes in exchange for demilitarization," he said.

As for the city of Jerusalem, Abba Eban suggested that a Vatican-type solution might be the answer. The Moslim holy places and perhaps a section of the city might fly a different flag and enjoy an independent sovereignty, but there would be no barrier to free access -- just as there is no physical barrier to free passage from the Vatican City in Rome to the rest of the Italian capital.

Eban also dismissed the violent protests of both Syria and the Palestine Liberation Organization as the "cries of impotence and desparation."

Without Egypt, Syria could not possibly oppose "the might of Israel." Egan said. Therefore, in a diplomatic sense, Jordan's King Hussein might be the key to whether or not the Sadat initiative gains acceptance among the Arab states that count. Saudi Arabis, in Eban's view, has already "given the yellow-green light" to the Sadat visit.%TThe important factor, in Israel's view is that a chance now exists for a real dialogue. "The existance of a dialogue doesn't insure success." Eban said. "But the absence of it insures failure." Washington Post special correspondent Yuval Elizur also contributed to this story.