Israel's Cabinet issued an ultimatum yesterday to ultranationalists who have established an illegal Jewish settlement on the West Bank, warning that if the settlers refuse to leave by today, Israeli troops will move in and break up the encampment.

The settlement, which was established early Tuesday as a symbolic protest against Prime Minister Menachem Begin's peace agreement at the Camp David summit, escalated yesterday into a near crisis for the government.

Beyond the civil disobedience aspects of the protest, the confrontation presented the government with a delicate diplomatic and political dilemma:

If it orders a forced assult on the settlement, if will be certain to exacerbate parliamentary opposition to Egyptian President Anwar Sadat's insistence that settlements in the Siani Desert be removed before an Israeli-Egyptian peace treaty is signed.

If the government fails to act quickly, however the hesitation could cast doubt upon Israel's readiness to make concessions on the civilian settlement issue.

The settlement issue came to the fore as Israelis were preparing to give Begin a hero's welcome on his return from the United States. Public opinion polls released here show a majority of Israelis in favor of dismantling settelements in the Sinai if that would lead to a peace treaty with Egypt.

Reportedly at Begin's rejuest, Defense Minister Ezer Weizman flew to the remote mountaintop camp near the West Bank town to Nablus and ordered the demonstrators to move to other Jewish civilian outposts in the occupied territory.

When the leaders of the ultranationalist Gush Emunim (Faith Bloc) refused, Weizman said the would be given until 11 a.m. today (Israel time) after which they will be forcibly removed, Gush Emunim leaders said last night.

The Cabinet discussed the problem earlier yesterday, but government officials would say afterward only that a "timetable" for the eviction had been set. They refused to say when it would be implemented.

Gush Emunim has established a number of "illegal" settlements over the years. The Eilon Moreh settlements near Nablus began when 20 families hauled a prefabricated wooden cabin and some tents to the remote hilltop and named the site after a Biblical settlement believed to have existed there.

The Gush Emunim had been impatiently awaiting government approval to settle at the site and, according to the group's leaders, decided to make a test case against the Camp David agreements.

Gush Emunim leader Hanan Porat said that for every settlement taken down by the government, 10 more would be established in defiance of the summit accords.

Barrauch Robins, a Gush Emunim spokesman, said in a telephone interview last night that more than 400 persons were now at the site, and that it has been ringed by a barbed wire "defense fortification."

"They told Weizman they would not consider this kind of ultimatum. They are there to stay. They are not playing games," Robins said. Robins said he was in radio contact with the group, which has been isolated by a ring of army troops.

Some fistfights reportedly broke out yesterday between Gush Emunim activists and Israeli soldiers guarding the approaches to the site. Several persons were reported slightly injured.

While the future of Israeli settlements continued to hold the attention of ultranationalists and some members of the Knesset, there was evidence that the Israeli public does not regard the issue as fervently.

A public opinion poll by the Pori Institute, commissioned by the newspaper Haaretz, showed that 52 per cent of the persons questioned said that establishing new settlements in the occupied territories was not justified, while 34 per cent supported new civilian outposts.

When asked whether the government policy on settlements has hurt or helped Israel's standing in the world, 53 per cent of the sample said it had hurt, against 11 per cent who believed it had helped.

Another 21 per cent said it had neither helped nor hurt, and 15 per cent no opinion.

The Israeli Army radio yestersay released the results of another poll it said was conducted by a private agency on Tuesday, showing that Begin's performance rating had risen 16 per cent since just before the start of the summit. The army radio said that before the summit, 62 per cent of those polled were satisfied with Begin's performance as prime minister, and that on Wednesday 78 points said they were satisfied.

Meanwhile, Israel began to prepare a massive welcome for a prime minister who - just two months ago - had to stand up in the parliament and defend himself against opposition charges that his "blunders" in foreign policy reflected a "mental sickness" possibly resulting from overmedication.

Begin's popularity dipped to a low point when he refused to permit contacts between opposition Labor Party leader Shimon Peres and Arab leaders, and when he gave short shrift to a peace meeting in Salzburg, Austria, between Weizman and Sadat.

Incongruously, the biggest welcoming demonstration for the prime minister is being planned by the Peace Now movement, the group which for six months has angrily denounced Begin as an obstacle to peace and which has called for his resignation.

Also, Jerusalem Mayor Teddy Kollek said Israel's capital will stage a major homecoming demonstration Friday afternoon, and that Begin will be greeted with traditional offering of bread and salt that is a part of Jewish custom. The city will be flag-drapped and special ceremonies will be held, municipal officials said.

In a footnote to the euphoria surrounding the atmosphere of peace, the afternoon newspaper Yediot Ahronot, quoted Sadat as telling one of its correspondents in Washington that he is "convinced" he will soon meet Begin in Cairo to sign a peace treaty.