The news out of the Israeli Cabinet Mondy was bad. But wht stunned the American officials most was when they were handed the piece of paper.

It was a communique. It was the Israeli Cabinet's way of saying it was all over.

"Significant progress... but problems remain." That was the way it read and Secretary of State Cyrus R. Vance, presidential adviser Zbigniew Brzezinske and others figured they knew a diplomatic sign-off when they read one.

The communique draft had been handed to the American officials by the Israeli officials at the end of a meeting that had been marked by Americans wanting to discuss new proposals and Israelis saying no.

Through it all, the Americans recall, some of the Israeli Cabinet members looked most unhappy. They would get up from their seats, pace back and forth, sit down, drum their fingers on the table.

Later on that would be important, but the Americans did not realize it at the time.

As a number of Carter administration officials reconstruct it, the Israeli Cabinet members had met by thrmselves to look at American suggestions for resolving the several issues that remained. And, at 4:30 p.m., Vance and Brzezinski and company had been called into the room to hear the verdict.

The Israeli Cabinet members were saying they saw no reason to change their previous stand on the Gaza Strip and Sinai oil wells and stepped-up troop withdrawals as a pre-condition for exchanging ambassadors with Egypt. The American officials said they wanted to go over the proposals to search for some flexibility. The Israelis gave their response: we can't go over it again; we stand by our position. And then came the paper.

The Americans went back to the King David Hotel convinced that President Carter's peace mission would end in failure. "I was sick at my stomach -- literally -- that night," Hamilton Jordan recalls, remembering when he got the word. "It was all over. It looked like we had tried and failed."

Vance and Brzezinski went up to the sixth floor and broke it to the president. "We tabled all the suggestions that we had," Vance said. The Israelis would not be moved and there just was not enough to get Egypt's Anwar Sadat to sign up.

The president had been scheduled to leave Israel that day, and he had delayed his departure for hours and now it seemed too late. Carter decided to spend the night in Jerusalem and leave in the morning. Strictly as a courtesy he would ask Prime Minister Menachem Begin to come by for breakfast in the morning. Then he would fly to brief Sadat on what happened in a quick airport rendezvous in Cairo and then he would go home.

But not far away -- unknown to the president and his advisers -- a halfdozen or so members of the Israeli Cabinet were holding a rump meeting. They were unhappy with what the full Cabinet had just done, according to infomed sources. They did not want it to end that way.

Among those attending, according to these sources, were believed to be Foreign Minister Moshe Dayan, Agriculture Minister Ariel Sharon, Deputy Prime Minister Yigael Yadin, Justice Minister Shmuel Tamir, and Health Minister Eliezer Shostak. They represented no one faction. Some were moderates. But Sharon was known as a hawk.

These Israeli members of Cabinet favored one more try. At about 7:30 p.m., Dayan telephoned Vance. He said he had been talking with some of the Cabinet members and he wanted to get back together with the secretary.

At 9:15 p.m., Dayan met with Vance.

Dayan made it clear that he could not speak for Begin and that he could not actually negotiate on behalf of Israel at this time. But he could discuss the issues once more. He discussed the idea that, on the Sinai oil, Isrsel would agree not to demand preferential treatment on the purchasing of oil from those wells it would be giving back to Egupt. Vance suggested that in return the United States would up its ante: it would guarantee to provide all the oil Israel needed for 15 years instead of the 10 that had been talked about before. They also discussed the matter of speeded-up withdrawals and the exchange of ambassadors, and Egypt's desire to have Palestinian autonomy pressed on the Gaza first.

President Carter knew none of this. He was off looking at the Dead Sea Scrolls with Yigael Yadin.

Over at the Jerusalem Theatre, Israeli spokesman Dan Pattir gave a press briefing and put an optimistic apin on the talks. He stressed how significant progress had been made and spoke of the negotiations as if they were a continuing process.

Over at the Jerusalem Hilton Hotel, American spokesman Jody Powell gave a press briefing and put a negative a press briefing and put a negative spin on the talks. He emphasized how issues remained that were not resolved and he said Carter would be leaving for Washington in the morning with a quick stop to "brief" (not negotiate with) Sadat on what had happened.

At 10:23 p.m., Carter returned from viewing the scrolls. He stopped by his hotel room, walked down the corridor and tock a left turn and stopped in Vance's room to see what was going on. Vance told him about the meeting with dayan and how it might mean something and then afain it might not.

Carter stayed 15 minutes and gave some instructions on how new language should be drawn to take into account what Dayan had said. Vance and his assistants began draftng and they would not finish until 1 a.m.

At 11 p.m., Jody Powell began holding briefings for American reporters. First the TV networks, then the print press. The sessions were on "deep background," a ground rule which means that the reporters cannot attribute what they are told to the briefer -- not by name nor even by such loose attribution as "U.S. officials.

(The Washington Post attended the briefing; but the fact that the briefings were held has already been disclosed by a United Press International report.)

After the briefings, a number of reporters filed very gloomy assessments about how the peace initiative was collapsing -- and some even wrote that it had collapsed.

Powell said last night in an interview: "The guidance I was giving reporters after the briefing was that if I were to write a story now I would have to report that it does not look good. But I also told them cover your a -- because there were still the breakfast meetings and anything could happen."

The negative news reports served to place pressure upon Israel. But Powell says that was not his intent. He says he was merely trying to tell reporters what was going on as best he knew it.

The Israelis had looked at Carter as a president who was politically weak at home and would not want to return to the United States without a success. It is likely that they hoped Carter would be willing to press Sadat to give in while they held firm. But Powell's briefings served to let the Israelis know that Carter was perfectly willing to say he had tried and not succeeded and was going home emptyhanded -- even though Powell and other administration officials say emphatically that this was not his purpose.

Before his briefings, Powell talked with several top Carter officials about what he intended to say. "Jody said the American press had expectations that were very high -- too high," said Hamilton Jordan. "He said some thought a peace treaty was all locked up. He said he was going to put things in proper perspective."

Last night, Israeli spokesman Pattir said: "There was no foundation whatsoever to present the situation Monday night in the way it was done -- in the gloomiest, bleakest way as if it were the end of the road, failure."

And Begin declared that White House spokesmen should "beg the forgiveness of the American people. whom they misled."

Tuesday at 7 a.m. Vance, Brzezinski and others met with Carter for about a half-hour in the president's room. They reviewed what they knew would be the last proposals they would be placing before Begin. At 8:30 Begin arrived and breakfasted alone with Carter.

Outside the closed door of the room, U.S. and Israeli officials paced back and forth and drank coffee."It was two hours of prolonged tension -- like waiting for a jury to come in with the verdict," recalled one U.S. adviser. "The meeting lasted longer than expected and we had to guess whether this was good or had."

Among the officials were Powell and his Israeli counterpart, Pattir, who had just told reporters that the American spokesman had seriously misled them. But he did not mention this to Powell.

When the meeting ended, Begin had told Carter only that the proposals were serious and deserved to be considered by the full Cabinet. He did not tell Carter he would recommend them.

On the way to the airport, Israeli officials passed hints to their U.S. counterparts that they thought Begin would addept the proposals.

But Jimmy Carter boarded Air Force One and flew to Egypt without knowing for sure.

At the airport VIP pavilion in Cairo, Carter presented the identical proposals to Anwar Sadat. And the Egyptian president made his major concession pulling back from his insistence that Egypt have liaison officials in place in the Gaza Strip to work out methods for Palestinian autonomy there.

Carter and Sadat came out and faced the press. And Sadat remained silent while Carter at long last, said his peance.