Faced with criticism at home and abroad, the Israeli Cabinet yesterday shelved plans to build five new paramilitary settlements in the occupied Jordan Valley until after the Camp David summit next month.

The decision was made at a Cabinet meeting chaired by Deputy Prime Minister Yigael Yadin, who had criticized the plans for new settlements in Arab territory occupied by Israel in the 1967 war.

Yadin had consulted by telephone with Prime Minister Menachem Begin and Agriculture Minister Ariel Sharon, a backer of the settlement plans. Begin, Sharon and Defense Minister Ezer Weizman, another key figure in the dispute, were absent from the meeting.

The decision several days ago by a Cabinet committee headed by Sharon to go ahead with the new settlements had brought criticism from both Egypt and the United States. The leaders of the three countries are to meet Sept. 5 at Camp David to seek a way to reach a Middle East peace settlement.

There were reports that Sharon had begun recruiting settlers before the full Cabinet considered the plans for the settlements.

In Washington, officials said the State Department had complained to Israel about the proposal to build five new settlements. Secretary of State Cyrus Vance told reporters after testifying at a Senate Foreign Relations subcommittee: "Our position is clear. There should be no settlement."

[Vance said he was pleased that the Israel Cabinet had delayed any final action until after the summit.]

While the postponement of the decision on the new settlement was presented as temporary, observers here saw it as a serious setback for Sharon and his policy of "settlements at all costs."

The censorship of news of the committee decision and confusion over whether a proper government decision had been made also damaged the image of the Begin government as a whole.

Most newspaper editorials concluded that the government seems to have a talent for getting hopelessly entangled in minor issues and for giving itself a black eye even when it has done nothing wrong.

The affair also seems to have damaged the image of Yadin, leader of the moderate members of Begin's coalition government. Yadin, leader of the Democratic Movement for Change, had given confused public statements on the issue, at one point denying that a decision on the settlements had been made at all.

Since at least a third of the Democratic Movement's 15 members of the parliament are known to favor quitting the government coalition, the dispute over the settlements is expected to deepen the rift between Yadin and his critics within his own party. It can also be expected to widen the gap between Yadin's party and Begin's Likud.

Many Israelis believe that if the Camp David talks renew hopes for a peace settlement, the freeze on new settlements will become permanent. If the talks end in failure, the settlement issue may become a factor in a political crisis.

[TEXT OMITTED FROM SOURCE] plant because the United States refuses to grant assistance to the project unless Israel signs the nuclear nonproliferation treaty, the national radio said yesterday.

The plant was to have been built by 1985.

The state-run radio said Israel has invested $939,000 in the project.

The Carter administration insists that Israel first sign the 1963 nuclear nonproliferation treaty before the United States will assist in the project, the radio said.

Israel has a secret atomic installation outside Dimona in the Negev and a small nuclear experimental station on the coast at Nahal Sorek, north of Ashdod. Israel long has been thought to possess nuclear weapons or at least the capability to build them.