Egypt's delegation to the peace negotiations with Israel will probably be recalled to Cairo for "consultations," apparently in protest against Israel's decision to expand Jewish settlements in the occupied Arab lands.

The official Middle East News Agency last night quoted Prime Minister Mustapha Khalil as saying the recall would be a "routine procedure" that "does not mean the negotiations are foundering."

But the Egyptians have been saying that such move by the Israelis was the one thing that could throw the negotiations off course, and the Israeli announcement clearly came as an unpleasant surprise. Only the day before, President Anward Sadat said he thought it possible that the treaty could be signed in the first week of November.

According to the official statement, Khalil said a final decision on the recall of the delegation would be announced today. The wording of the announcement, however, left little doubt that the decision has already been made. Well-placed officials said the leaders of the delegation, Defense Minister Kamal Hassan Ali and acting Foreign Minister Boutros Ghali were expected in Cairo on Saturday.

The Egyptian statement revived memories of the crisis last January when Sadat suddently pulled surprised Egyptian delegates out of peace talks in Jerusalem that the participants thought were making progress. This time, however, the situation is different and a breakdown in the negotiations seems less likely.

Khalil said Egypt "is determined to go ahead to reach a peace treaty within the framework of the accords signed at Camp David," reinforcing the impressions here that Egypt has so far committed itself to peace with Israel as to be unable to turn back now.

Sadat is avoiding the kind of rhetorical crossfires in which he engaged Israeli Prime Minister Menachem Begin last winter. This time, at least on the issue of the settlements, the Egyptians have the Americans squarely on their side.

Secretary of State Cyrus Vance's strong criticism of the Israeli move is certain to be welcomed by the Egyptians, who have said they regard the West Bank settlements issue as the key test of American intentions on the Palestinian question.

By bringing its delegation home now, Egypt would leave the Israeli team, which returned to Washington yesterday, to face the wrath of the Americans while the Egyptians sit at home awaiting the outcome.

The main Cairo newspapers reported Vance's remarks under big headlines on their fron pages, a reflection of the importance to Egypt of the American role.

Khalil's settlement, as quoted by the official news agency, was cautiously worded and did not specifically mention the settlements issue.

"The Egyptian government is at present studying the possibility of calling the delegation for consultations in the light of the latest statements by Israeli officials," it said. The return would also "enable President Sadat to find out the status of the talks and their progress in light of the observation Egypt submitted on the draft Egyptian-Israeli agreement," the statement said.

Egyptian officials have expressed chagrin at what they see as Israel's attempt to interpret the Camp David accords in such a way as to emphasize the bilateral agreement with Egypt and give the least possible to the Palestinians.

Foreign Ministry officials have said that their chief difficulty in trying to persuade other Arab states to endorse the Camp David accords lies not in the texts themselves but in the public statements by Israeli leaders saying they mean less than what the Egyptians would like them to mean.

"Israel still does not understand," one source said yesterday, "that it can have real peace only by being forth coming in the occupied territories, not by digging in to hold on to what it has. The Israelis should be helping us to sell this agreement to the Jordanians and the Palestinians, but they are making it hard for us."

Statements such as those made yesterday by Israeli Prime Minister Menachem Begin that the Israelis have a "right" to settle in the occupied territories are certain to be used against Egypt at an Arab summit conference to be held in Baghdad, Iraq, next Thursday. Egypt has not been invited to that conference.

The settlements issue caps a week of setbacks for Egypt in its efforts to persuade other Arabs, notably Syria, Jordan and the Palestine Liberation Organization, to drop their opoosition and join the negotiations on the basis of the Camp David agreements.

The PLO has denied that it authorized a prominent political figure in Gaza to enter the talks as its representative and Syria, far from coming a round to the Egyptian view, has sided with Iraq, the most absolutist of the Arab states in its opposition to any dealings with Israel.

That leaves Sadat facing, alone, the prospect of signing a peace treaty with Israel while Israeli troops are not committed to pulling out of the occupied territories and more Jewish settlers are moving into Arab lands.

This is precisely the situation he has sought to avoid, hoping that a conciliatory or generous policy on the part of Israel would improve his own position.