The daring diplomacy of Egyptian President Anwar Sadat has brought about important changes in Israeli's official policy.

Today's Knesset debate, said to be the most extensive in the 29-year history of the Jewish state, illustrated both the nature and the limit of this rethinking.

In a 45-minute address that opened the lengthy debate, Prime Minister Menahem Begin made it clearer than ever before that Israel is prepared to withdraw its military forces from the occupied Sinai over "a number of years" providing that agreement can be worked out on demilitarization of the area and the continuation of existing Jewish settlements there.

He also made it clear while offering civil "self-rule" to the inhabitants, his government intends to continue Israeli military control of the occupied West Bank along the Jordan River.

"Anyone who wants an agreement with us should be good enough to accept our statement that the Israel defense forces will be stationed in Judea (and) Samaria (the Biblical name for the West Bank) and Gaza," Begin said.

According to former Foreign Minister Abba Eban, a pillar of the long dominant but now minority Labor Party, "no Israeli government could have taken these positions on the Sinai and autonomy (for the West Bank) before Sadat's initiative."

Eban also said in an interview that Begin will have to move further toward the Sadat position in order to obtain a peace agreement.

One of the fundamental differences here is between those who believe that Sadat can make peace with Israel despite continued Israeli military control of the West bank, and those who believe that a new arrangement on the West Bank will be necessary.

Labor Party chief Shimon Peres congratulated Begin for "moving in the right direction" but called for territorial concessions to Jordan on the West Bank in order to obtain peace Former Prime Minister Yitznak Rabin suggested a Jordanian "trusteeship" over the West Bank.

Both opposition leaders suggested that some kind of arrangement with Jordan over the fate of the 700,000 Palestinian Arabs on the West Bank will be required in order to get a peace with Egypt.

Begin evidently does not agree. The United States recommended vagueness and ambiguity in Begin's proposals for the West Bank, in order to make them palatable to Sadat and the other Arabs. Today Begin went far toward dissipating that must declaring that "the murderer's organization known as the PLO" will take over the West Bank if Israeli troops withdraw.

Begin was directing his words to his traditional friends on the right, some of whom are in open revolt against his peace proposal and others of whom are uneasy or uncertain. In this sense his hard line was perhaps not surprising. Nevertheless, it will have impact. In a parliamentary democracy with a free press, the rest of the world as well as his chosen audience could listen.

Now that the soaring hopes for a quick Egyptian-Israeli peace have descended, Begin and most of his close associates continue to radiate confidence. They seem to believe that Sadat is so eager for peace he will swallow nearly anything that is offered to the Palestinians on the West Bank.

This is not what Sadat said on Monday, when he maintained publicly that the Palestinian question is "the core and the crux of the problem" in that "on the West Bank and in the Gaza Strip a Palestinian state should be established." But some of Begin's associates believe Sadat really does not mean it.

Israeli participants in the Ismalia talks say Sadat appeared to be on the verge of accepting innocuous language on the Palestinian problems when "advisers" intervened to warn him off. "The generalities were to be the basis for moving ahead swiftly toward a peace agreement. The implication is that after some future maneuvering, Sadat may cut the Palestinians adrift to obtain a deal with Israel.

Foreign Minister Moshe Dayan, who publicly declared himself to be "very worried" about Sadat's position after the Ismailia talks, evidently does not agree that the Egyptian president is merely going through the motions. This may be the cause of the present strain between Dayan and the rest of the Begin entourage, and of the testiness that caused Dayan to lose his cool toward the end of today's debate.

Unless Sadat is hell-bent on getting a deal on any terms, he is likely to be affected by the attitude of the West Bank Arabs. The acquiescence, if not the enthusiastic banking of this group would seem to be necessary for Sadat to say that he is sustaining the Pan-Arab cause.

The West Bank residents, according to observers, see the Begin plan as promising the worst of all possible worlds. Israeli military control would continue, which would seem to make the reality of "self-rul" a questionable matter. At the same time Israelis would be free, as they are not now, to purchase land and settle at will in the occupied area.

The West Bank Arabs fear that richer, better organized Israelis would annex much of the West Bank by the power of lease and purchase. This could make military sway, which international law and world opinion does not accept, increasingly irrelevant.

Despite the unexpectedly small margin of support on today's voting, there is little doubt that Begin has the votes to put a peace plan of a more far reaching nature than that which he presented to Sadat on Christmas and to the Knesset today. There is considerable doubt, however, that he has the intention or desire to do so.

"With the conclusion of the meeting at Ismailia we have done our part: We have given our share. Hence forth, the other side has the floor," Begin said.

He appears prepared for a diplomatic war of nerve with Sadat before contemplating further changes on the part of Israel.