The Israeli Cabinet determined yesterday that the chief of staff, Gen. Rafael Eitan, did not overstep his authority by declaring that Israel would be unable to defend itself if it gave up the West Bank of the Jordan River and the Golan Heights.

The chief of staff, who took his job only last month, said in a television interview on Thursday that even with modern weapons systems, Israel could not defend itself adequately without those territories.

As for the occupied Sinai, Eitan said it would depend on what kind of agreement Israel could make with Egypt. He said the Arabs' basic intention was still to obliterate Israel even though there were some Arabs who would try to achieve this aim by means other than war.

The general was criticized by opposition leaders and in newspaper editorials for having broken the rule that military men should not make political statements in public.

The deputy prime minister and leader of the Democratic Movement for Change, Yigael Yadin - himself a former chief of staff - asked that the matter be discussed at yesterday's regular Cabinet session. Yadin's party, the second biggest in Prime Minister Menachem Begin's coalition government, favors territorial compromise on the West Bank although not complete withdrawal.

Yadin's objections to Eitan's statement were voted down 18-3 by the Cabinet. Yadin said afterward that the government decision is binding even though he does not agree with it.

Although Defense Minister Ezer Weizman defended Eitan, it is understood that privately he found the general's remarks embarrassing.

The matter may now be officially closed, but there are many who agree with criticism such as that in the independent daily Haaretz. The newspaper editorialized that the government "must ask itself what credibility is left to its repeated declarations to the effect that everything is open to negotiations if the chief of staff makes public his view that we may not under any circumstances give up Judea, Samaria and the Golan Heights." Israel refers to the West Bank by its biblical names of Judea and Samaria.

Eitan is known as a soldier without much political sophistication, but his bluntness has given expression to what many Israeli military men have been saying privately all along.