Israel must make the critical decision by January to bargain over the occupied territory on the West Bank of the Jordon River to sustain its negotiations with Egypt, former Israeli Foreign Minister Abba Eban said yesterday.

Prime Minister Menahem Begin "has got to find a way out of his own rhetoric" that Israel must retain its biblical heritage in the West Bank, largely populated by Palestinian Arabs, Eban said.

There either has to be a change of Begin's position "or of the government," said Eban, a member of Israel's opposition Labor Party,. Begin was foreign minister when the first Geneva conference was held in 1973. It lasted only two days, but was employed as a backdrop for two subsequent Egyptian-Israeli military disengagement accords, and another with Syria.

"I think the Israeli decision has to come by January, or something like that," Eban said at a breakfast meeting with editors and reporters of The Washington Post.

Eban conferred yesterday with Secretary of State Cyrus R. Vance.

Israel, Eban said, has to say that it "does not accept any longer the slogan that there can never be a foreign sovereigntly west of the Jordan."

For the Labor Party, Eban said, "The West Bank is like Sinai (the Sinai Desert). You do whatever has to be done for security." The West Bank under a Labor government, said Eban, would be "on the table. That doesn't mean to say you won't get an improvement." He said the West Bank "is a thing to be carved up, and not something to be put in a safe."

Unless Begin moves on this issue in negotiations with Egyptian President Anwar Sadat, Eban said, "I think we can stir things up in his cabinet and in the country and in the Likud Party (Begin's party). There are not 50 per cent of the members of the Knesset (parliament) in favor of Begin's views on this."

Sadat's initiative for peace with Israel, Eban said, represents a tremendous opportunity and the forthcoming Cairo conference must not be minimized. Quoting the late Hollywood producer, Eban said with a smile. "As Sam Goldwin said, this movie is not very good, it's only colossal."

The United States, Eban said, must abandon the notion that a separate Egyptian-Israeli peace settlement would be equivalent to "a sin."

"Even if you have a comprehensive peace." Eban said, "it will have to be built in stages." American insistence on a comprehensive peace settlement of a reconvened Geneva conference, Eban said, has become "a fetish."

"Geneva," he said "is simply a place where you notarize in public what you elsewhere, but not a place where you actually work out agreements."

Eban said the attitude of saying, "Egypt and Israel are talking - but what about Arab unity?" is misplacde "The question, he said, "is whether you want peace or whether you want Arab unity. You obviously can't have both."

T seek Arab "unanimity" on negotiations, Eban said, "means you give a veto power to the most intransigent" Arab nation "United (Arab) action is only possible," Eban said "against Israel."