The Israeli cabinet yesterday bluntly rejected a proposal by Egyptian President Anwar Sadat that Israel return the northern Sinai town of El Arish to Egyptian control as a good will gesture to stimulate the deadlocked Middle East peace megotiations.

Prime Minsister Menachem Begin said such a gesture, proposed two weeks ago by Sadat in a meeting with Israeli Defense Minister Ezer Weizman and supported by several Israeli Cabinet ministers, was a "whim" and would not "hold water politically."

In an unusual step, the Cabinet also formally defended Begin against opposition charges that his health has been impaired. Begin dismissed the charges as "name-calling."

Sadat reportedly has suggested that conducting peace talks at El Arish, in occupied territory just returned, would be of symbolic significance and could generate the kind of mutual trust evident during the Egyptian president's historic visit to Jerusalem last November.

Begin rejected that concept, saying that Egypt must be willing to offer something in return for El Arish before Israel considers the proposal.

"I would like to say a word which is known in the United States. Nobody can get anything for nothing and this is going to be the policy of Israel," Begin told reporters after the Cabinet decision.

Nevertheless, Begin said, Israel is willing to negotiate with Egypt "on the basis of reciprocity," either in Egypt, Israel or any neutral country. The secretary of the Cabinet, Aryeh Naor, later said that reciprocity in the context of the El Arish proposal means a "quid pro quo."

(In Cairo, Associated Press reported, Egyptian Foreign Minister Mohammed Kamel said the response indicates "once more that the Israelis are not showing any readiness to budge from their frozen position.)

Sadat, in his meeting with Weizman in Salzburg, Austria, suggested that El Arish, the capital of the Sinai, be returned to Egypt and that Egypt could then host the second round of peace negotiations begun last week at Leeds Castle in England.

Begin, in an interview broadcast from Jerusalem for "Face the Nation" (CBS-TV), said Sadat suggested not only the return of El Arish but Mt. Sinai as an interim step while negotiations continue. Israel has already offered Egypt the return of virtually all the Sinal desert, provided Israel can continue to have military airfields and Jewish settlements in the territory.

"We made the real gesture, our peace plan," Begin said, referring to Israel's 26-point peace proposal which includes limited Palestinian self-rule in the West Bank and Gaza Strip.

"Why should we give El Arish (and) the Moses Mountain? Moses would be angry with us if we give it away, especially for nothing, the mountain bearing his name," Begin said.

"And this is a very sacred place, you know, and therefore these so-called unilateral gestures. I don't think they'd hold water politically. It is just a whim, and we are not going to deal with whim. We want peace," he added.

The Cabinet's official rejection of the El Arish proposal, which was sent to Sadat in a personal message from Begin yesterday, places upon the United States the new burden of bringing Israel and Egypt together in an as yet undetermined site.

One proposal is that the foreign ministers and defense ministers of both countries, along with U.S. Secretary of State Cyrus Vance, meet in a U.S. administered early-warning station in the Sinai buffer zone.

Left unclear from Begin's statement both in his television interview and his remarks to reporters after the Cabinet session was what Israel expects from Egypt in return for a good will gesture.

In the interview, Begin said of the proposal,"This is a unilateral act. This is a unilateral present . . . and therefore I suggest to President Sadat, let us sit down around the table and contemplate and negotiate on the basis of reciprocity. You suggest to us that we give you El Arish, for instance. We may have some suggestions about the other problems which are of our interest."

Cabinet secretary Naor said,"you want to negotiate El Arish? Okay. This is what you take. I ask you what you want to give."

Although it was understood that Weizman and Deputy Prime Minister Yigael Yadin both urged the Cabinet to accept Sadat's proposal and the Finance Minister Simcha Ehrlich also supported it. Naor said,"Nobody suggested unilaterally giving without taking something in return."

A senior Foreign Ministry official, in an apparent attempt to modify the quid pro quo tone of the Cabinet decision, last night telephoned a reporter to say that what Israel really rejects is the concept of giving territory "outside the framework of negotiations."

"If such an idea came up within the framework of negotiations, Israel will consider it." he said.

The Cabinet response to the opposition Labor Party - whose members charged that Begin's capacity to lead might be impaired by illness or by medication he has been taking - followed a heated argument in parliament Wednesday. At issue was Labor leader Shimon Peres' July 9 meeting with Sadat in Vienna. Several Labor leaders openly suggested that Begin may be mentally ill.

In a communique, the Cabinet declared "the government of Israel condemns the personal attacks of the leaders of the alignment on the prime minister. The false need for virulent attacks testifies to the fact that today's opposition is deviod of all national responsibility."

When asked about the Labor charge during the television interview, Begin answered sarcastically,"Yes, that is a very kind question you put to me, but as I am 50 years in this business of politics, I learned what is name calling and I treat name-calling with the contempt that it deserves."

After the taping of the interview, Begin became animated about the subject of his health, angrily referring to the Labor opposition's "dirty tricks" and complaining angrily that when Franklin D. Roosevelt served much of his presidency in a wheel-chair the opposition made no insinuations about his capacity to function.

Begin also complained about opposition allegations that he was indiscreet in revealing Peres' intention to meet with Jordan's King Hussein. As a member of the underground during Israel's fight for independence, Begin said, he kept secrets upon which men's lives depended.

Referring to his oft-repeated claim that a worldwide campaign is being waged to force his resignation, Begin said,"I will tell you something. I don't intend to resign . . . I'm going to fulfill my duty to the end, as long as I can, which means as long as parliament doesn't express non-confidence in me."

On Tuesday, Begin noted, former foreign minister Abba Eban is expected to introduce a no-confidence motion in the Knesset, which Begin said he is anxious to debate. The motion, like others introduced in Begin's first year in office, is to conduct a full debate of Israel's foreign policy today, with major addresses by Begin and Foreign Minister Moshe Dayan.