The earthmovers are at work on the occupied West Bank again, preparing ground for a new Jewish settlers, and as usual the diplomatic repercussions are expected to make more noise than the cacophony of the diesel engines.

The area being cleared for prefabricated civilian housing is near Nebi Salah, about nine miles northwest of Ramallah on the road to Tel Aviv.

Because of the diplomatic furor, it is likely that settlement activity in the occupied territories generally will be curtailed, although such a policy probably will not be announced by the government. Itis also just as likely that projects that were authorized six months ago - such as Nebi Salah - will go forward without interruption.

The United States has firmly maintined that all Israeli settlements in the occupied territories are illegal and an obstacle to peace. The Israeli goverment takes the position that Jews should be allowed to settle anywhere in the ancient biblical land of Israel, most notably in Judea and Samaria, the bibical names for the West Bank.

Local Arabs have complained bitterly that land being belongs to them, and reportedly they have produced documents showing they have paid taxes on the land to Jordon. The Israeli's, however, claim the land was always state-owned.

The Nebi Salah settlement cannot be considered a new venture, since it is one of six sites that the Israeli governments approved last September as part of a compromise with the Gush Emunim (faith bloc), the nationalistic organization dedicated to settling the West Bank territory captured from Jordan in 1967. Gush Emunim wanted 12 new settlements, and they were allowed to establish six. Settlers have been living in an old British police station next to the site now being prepared on land under the control of the Israel military.

The Nebi Salah settlement was among those which Foreign Minister Moshe Dyan discussed with President Carter in September, when Dayan reportedly assured Carter that the settlements would be restricted to Israeli military installations for the time being. There was some disagreement afterward whether Dayan had said this policy would remain in effect until the end of the year, or for one year.

Although the Israeli government refused to halt settlements on the West Bank, the Israeli Cabinet did decide in February not to begin any new settelemnts in the Sinai, which by then Israel had offered to return to Egyptian sovereignty in exchange for a peace treaty. The government said, however, that it would continue to beef up existing Sinai settlements. A recent Israeli television report said 270 more families would be moving into the northern Sinai in the summer. If this report is borne out, it will undoubtedly complicate relations between the U.S. and Israel.

Construction the Nebi Salah site was about to begin early last month when Defense Minister Ezer Weizman was in the United States and Prime Minister Menacham Begin was about to leave Israel for his talks with Carter. In a now famous telephone call to Begin, Weizman insisted that no land clearing operations start while he was in America.Weizman later denied that he threatened to resign, but he did admit that *the "put his foot down quite hard."

But Weizman's objection was connected more to the fact that he was in the middle of delicate talks with the United States, rather than any objection to the Nebi Salah settlement, which had already been approved by the government. Last week, therefore, Weizman lifted the temporary ban and land clearing began.

In spite of the work on the Nebi Salam project, there is some evidence to suggest that Israel may be restricting its settlement policy in occupied territories. There has been a long-standing dispute between Weizman, who believes that settlement activity should be curtailed during negotiations with the Egyptians, and Agricultural Minister Ariel Sharon, who believes that the occupied territories should be colonized as quickly as possible.

According to the authoritative newspaper Haaretz, the government recently decided to refer all decisions concerning new settlement including the date of settling, the sites and the expansion of existing settlements - to the Ministerial Defense Committee. Previously, the establishment of newsettlements has been decided by the Cabinet, but other questions relating to settlements were within the purview of Sharon's Settlement Committee.

The paper quotes a "senior government source" as saying "this is tantamount to a reduction in the powers of Ariel Sharon in the matter of settlements."

The prime minister's issued a statement saying there was "no foundation" to the report that Sharon'sauthority over settlements had been curbed. But, when asked, officials took pains not to deny the main thrust of the story that the Ministerial Defense Committee had been given added authority.

Given that the Ministerial Defense Committee has representatives from all coalition faction, it is likely that the net effect will be to curb settlement activity and that Sharon has, in fact, lost ground.

It has been hinted privately that both Washington and Cairo have been informed that Israel intends to go slow on settlements in the interest of peace, just as long as negotiations are in Progress.

Prime Minister Begin, in a recent interview, said that he had never said such a thing because negotiations were an opened-ended affair that might take years. If he had made such a promise, and if Israel then wanted to go ahead with a new settlement, it would be tantamount to declaring that negotiations were over, Begin said, and Israel would never be put in a position of saying that negotiations were at an end.