It was incorrectly reported in yesterday's editions that the National Council of Churches is making an award to Prime Minister Menachem Begin this week. Actually, the Council of Churches of the City of New York is making the award jointly to Begin and President Anwar Sadat of Egypt.

Prime Minister Menachem Begin, in a reply to President Carter's sharp rebuke over Begin's plans to expand Jewish settlements in the occupied territories, yesterday reasserted Israel's right to strengthen the outpost.

The Cabinet, after discussing the issue, unanimously approved Begin's response, which was transmitted immediately to Washington.

Cabinet secretary Aryeh Naor refused to discuss the contents of the message, other than to say that Begin had written a draft to which other ministers contributed revisions.

However, it was understood that the message did not depart significantly from Begin's pledge Thursday night at a Tel Aviv political rally, at which the prime minister said, "My reply will be to reaffirm the inalienable and full right of the jewish people to settle any part of the land of Israel - including Judea and Samaria [the West bank] and Gaza."

The Cabinet decided to hold a special session again today to discuss Israel's strategy for the Washington peace negotiations with Egypt.

Agriculture Minister Ariel Sharon, who has been in Paris on behalf of Israel Bonds, canceled the remainder of his trip at Begin's request to return and take part in today's Cabinet meeting.

Sharon has been one of Israel's most outspoken advocates of settlements, and a persistent critic of U.S. attempts to restrain development of the Jewish outposts.

Begin yesterday read to his Cabinet Carter's message, which was said to complain that Begin's announcement on settlement expansion would interfere with the peace negotiating process.

Cabinet sources said that Begin responded by reminding Carter that the Israeli delegation to the Camp David summit conference made clear to the White House Israel's intentions to expand settlement.

Government officials would not say how this contention was documented, but Carter himself seemed to confirm it in a Sept. 27 breakfast meeting with reporters in Washington.

A transcript of Carter's on-the-record remarks at the breakfast meeting, on file at the International Communications Agency here, indicates that the president approved during the Camp David talks Israel's plans to go ahead with limited settlement expansion and make an announcement to that effect before the beginning of negotiations on the future of the West Bank and Gaza Strip.

Carter noted that the Camp David agreements originally called for no new settlements originally called for no new settlements and no expansion of existing settlements, but that this section was deleted.

The transcript quotes Carter as saying:

"We dropped the part on expansion because Begin and Dayan described to me the problems where they had existing tiny settlements that were being built and a mother and father - the example they used - would go there and build one room in a kind of pioneer environment, leave the children with the grandparents in Jerusalem and maybe even commute at night. And these plans were to build an extra two rooms on a tiny house and bring their children later on.

If we put an absolute freeze on expansion, it would mean the families couldn't be reunited . . .," Carter said.

Asked directly whether there was a limit on expansion "as you understand the agreement today," Carter responded:

"We had a discussion about this and the reference was to a very limited expansion plan that would be revealed before the negotiations for the West Bank and Gaza self-government would be completed."

Later, he said, "but I thought it was a good tradeoff that in dropping the expansion language we added on the status of future settlements would be decided during the negotiations, and to me it was a very clear understanding."

Israeli officials pointed to Carter's remarks as evidence that the United States should not have been surprised at Begin's announcement since the president had publicly acknowledged more than a month ago that he concurred with a limited expansion plan.

Israel has said that the expansion proposes the addition of "several hundred" housing units, plus construction of a water reservoir and roads, at a cost of $15 million.

Begin is scheduled to leave for the United States at midweek to receive a National Council of Churches award, and, according to government officials, will meet with Foreign Minister Moshe Dayan and Defense Minister Ezer Weizman.They said they did not know whether Begin will meet with any U.S. said. "We've been going out there to officials.