Israeli Prime Minister Menachem Begin submitted to his ministers today a draft response to Egyptian President Anwar Sadat in which Israel agrees to resume negotiations on side letters to a draft peace treaty, but insists it is unwilling to reopen key issues already accepted by the Cabinet.

By agreeing to return to the bargaining table in Washington, Begin softened a firm "take it or leave it" policy laid down by Foreign Minister Moshe Dayan Nov. 22. Dayan said then that the compromise draft treaty proposed by the United States and accepted by Israel is a "sealed package," and that the Isreaeli delegates would have nothing more to talk about in Washington.

Israel's fallback from its "take it or leave it" position and Sadat's new demands are part of a postureshifting process that diplomats from both sides say is necessary to play out before a final peace treaty can be signed.

The problem for both leaders, which touches on political considerations in their respective camps is how to link the Sinai treaty to the West Bank and Gaza Strip issues in a way that is visible to Sadat's Arab critics and yet acceptable to Begin's Israeli detractors.

Sadat wants to make it clear that he has not sold out the Palestinians for return of the Sinai Peninsula, and Begin wants to assure his conservative critics here that he has, indeed, signed a separate treaty with Israel's most powerful enemy with no strings attached concerning the Israeli-occupied West Bank.

Both leaders continue to voice optimism that the dilemma can be overcome, presumably once the rigidity of both men has been indelibly impressed on their constituencies.

Conceivably, the problem could be overcome by making the delicate agreements on the Palestinian-Sinai link and the timetable for West Bank autonomy in a side letter that would not be released until peace becomes a reality.

Dayan, who heads the Israeli delegation, is known to oppose returning to the peace talks as long as Egypt insists on making new changes in the body of the draft treaty. However, the foreign minister has expressed a willingness to talk with the Egyptians about unresolved issues as long as they are dealt with in side letters.

Dayan is scheduled to leave Israel Wednesday for an official three-day visit to Switzerland, thereby excluding the possibility of a resumption of talks this week.

[Egyptian Prime Minister Mustapha Khalil remained in Washington, meanwhile, awaiting results of the Israeli deliberations for further consultations with Secretary of State Cyrus Vance and other U.S. officials.]

The Cabinet met today under the guise of a ministerial security committee, which makes all discussions classified and provides criminal penalties for any ministers who disclose details of the deliberations.

However, it was understood that Begin told his ministers he does not object to resumption of negotiations providing they do not focus on the text of the treaty, but instead are limited to an accompanying letter of understanding.

The two principal unresolved issues remain the linkage between the Israeli-Egyptian treaty and a comprehensive Middle East settlement, including self-government for West Bank and Gaza Strip Palestinians and a timetable for implementing the selfrule.

But also emerging as a major point of contention is the contrast between Egypt's demand for a fully autonomous Palestinian authority on the West Bank and Gaza Strip and Israel's vision of a weak administrative council that would oversee basic municipal services but would never evolve into a constitutional assembly and, ultimately, a Palestinian state.

Two other basic problems to be dealt with in Begin's response to Sadat's letter are Egyptian insistence on dropping a "Priorities clause" that would make the Egyptian-Israeli pact supersede mutual defense pacts between Egypt and other Arab states, and Egypt's new demand that security arrangements in the Sinai Peninsula be reviewed in five years.

Egypt originally had demanded a review of the whole treaty after five years, but dropped the request. No date has been set in the compromise draft for reviewing security arrangements.

Following today's Cabinet meeting, Begin said he planned to work on his draft response to Sadat, while consulting Monday with Dayan and Defense Minister Ezer Weizman. Calling it a "very important" communication, he said both sides had agreed not to make the letters public.

The Cabinet also approved Begin's trip to Oslo, Norway, to accept the Nobel Peace Prize on Sunday. Sadat has said he will send an emissary to receive the prize.