After two years of modest recovery, Newark has plunged into a severe fiscal crisis that was marked today by the mailing of dismissal notices to 1,700 full-time and part-time teachers -- nearly a quarter of the school system's teaching force.

This and other city actions are bringing angry protests from city workers who threaten a general strike.

Newark is a city that bleeds when federal spending is cut and its crisis is one of the consequences of Washington's new tight rein on aid to cities.

Newark's $120 million operating budget is 60 percent paid by federal revenue.

Newark Mayor Kenneth Gibson accused the Carter administration today of having turned its back on the cities. Gibson's immediate problems stem from the loss of about $10 million in federal antirecession aid that Congress did not renew before it adjourned.

In response to the loss of federal aid, Gibson announced layoffs of 200 policemen from a force of 1,100 and of 241 other city workers, effective Dec. 31.

Policemen retaliated by handing out leaflets warning citizens to leave Newark by dark, to keep their car doors locked and by generally portraying Newark as a "city of fear."

In addition, police cars were vandalized and traffic signals were tampered with. City officials are investigating possible police involvement in the vandalism.

The potentially even more explosive layoff announcement came from the Newark Board of Education today. One thousand full-time employes and about 700 substitute teachers were affected by the dismissals. School officials and school union leaders are at each other's throats over the layoffs.

"This has created chaos," Carole Graves, president of the Newark Teachers Union, said. She said that as soon as the first layoff notice is received, school unions will go to court in an effort to halt the layoffs and force the school system to prove its claimed budget shortage.

School board president Carl Sharif and school superintendent Alonzo Kittrells said that although the school system faces a budget shortfall of about $3 million this year, the layoffs are not simply to save money.

Sharif said they are part of a shift in education methods that will place emphasis on teaching basic skills. In addition, he said, the new plan aims at eliminating teacher absenteeism which costs Newark's schools $3.5 million a year.

Classroom teachers will welcome the new plan to eliminate classroom aides and many of the specialty teachers (art, music and physical education) and make the teaching of these subjects one of the regular classroom duties, Sharif and Kittrells predicted.

Graves, however, called the plan incompetent and said, "It might impress someone who has no knowledge of education or psychology."

A coalition of city unions is planning to discuss the possibility of a general work stoppage and other less drastic responses to the layoffs.

Sharif said he expects labor leaders to attempt actions against the school system, but that he thinks most of the teachers in the 68,000-pupil system will side with him.

Newark's population has been declining since the city exploded in five days of rioting and looting in 1967. Whites had fled to the suburbs, joined by many white-run businesses that used to operate in downtown Newark. The population is about 330,000 now and the unemployment rate is over 13 percent. In 1967 the population was about 389,000.

Proving it never rains that it doesn't pour, Newark has a water shortage on top of its budget crunch. Gibson had to ask the city council for $150,000 in emergency funds today because the city's reservoirs, in the absence of rain, have fallen to their lowest levels in 12 years.