In this ancient caravan way station, where it doesn't take much to cause excitement, the townspeople are getting an overdose of it.

In anticipation of being the first Sinai town to revert to Egypt under the peace treaty with Israel, El Arish has gone on a nationalistic binge. The red-white-and-black flag of Egypt hangs from nearly every building and a carnival-like atamosphere has swept the town.

Big flatbed trucks overflowing with children and decorated with pictures of Egyptian President Anwar Sadat raced up and down the dusty main street today in an uncoordinated but happy parade that nobody seemed to want to end.

Garish taxicabs, almost obscured with decorations and Egyptian flags, drove aimlessly around the sandy town, their passengers hanging out the windows and shouting greetings to passersby.

Children, released from school on a three-day holiday proclaimed after the treaty signing, climbed on the cars of strangers, shouting "Sadat. Carter. Salaam. Shalom. Peace!"

A foreign visitor to the town's public square could count on becoming mobbed by townspeople, some of whom asked whether President Carter would make a visit to Ei Arish with Sadat.

"We are all very happy. We are coming to our brothers in Egypt," said Sami Abide Matar, a 20-year-old student.

In his modest mud-brick home, Ahmed Tanger, mayor of the 30,000 people of El Arish, said he viewed the peace treaty as a "rebirth" of the town, traditionally the capital of the Sinai Peninsula.

El Arish, on the northern Sinai coast midway between Israel and the Suez Canal, once was an important oasis on the caravan routes to Egypt and later was a bustling camel trading center.

The greeks called it Rinochorora-chopped nose-because it was believed to have been an early Egyptian prison camp, where the pharaohs kept criminals whose noses were cut off for easy indentification.

Over the centuries, El Arish passed from hand to hand in bloody battles that seem, in retrospect, more effort than they were worth. Among those who fought for the sunbaked town were the Maccabees, the Crusaders, Napoleon, the Turks and the British.

But its last major use was as a base for the Egyptian invasion of Israel in 1948. Since then it has limped along on its fishing industry, with 9,000 of its residents traveling to Israel daily for work.

The town is sorely in need of renewal, particulary of housing and roads, and Tanger believes Egypt will pay for it despite the economic burden west of the Suez Canal. He also believes the old Cairo-to-Damascus railroad, which lies rusting and unused, will be revived for traffic as far as Israel, giving El Arish an additional economic boost.

"This peace, it will make El Arish a new city. El Arish will be bigger, and its people will be busy building new houses," Tanger said in an interview.

Tanger also has a personal reason for celebrating peace between Egypt and Esrael, which he sitll refers to as Palestine. He will be reunited with his three sons, who live in Egypt and whom he has not seen since the 1967 six-day war, when Israel captured El Arish and all the Sinai.

"I am too happy. My sons will come here and the sons of many other people here will come together again," said Tanger, born in El Arish more than 75 years ago.

The mayor said he hopes El Arish workers who travel to Israel for work in construction and as farm hands in Israel's Rafia area will be abel to travel freely across the border, and that the Egyptain Sinai will be able to sell its procedure and fish to Irael.

But El Arish's first bonanza may come when it acts as host to the Israeli - Egyptian - American negotiations for autonomy in the West Bank and Gaze, scheduled to begin a month after the treaty is ratified.

The town has no hotels to speak of, although four run-down hostels already have begun taking reservations from reporters who will cover the talks. There are 50 telephones in the town and one central switchboard operator, who is said to have never placed an overseas call.

A waiter at the only restaurant that looks like a restaurant-called the "Helton" after a hotel chain of similar name-says he expects his one long table to be filled to capacity, and his cook, who serves delicious broiled fish fresh from the Mediterranean, to be working overtime.

Tanger, however, said Ei Arish can handle the influx and also can handle Israeli tourists headed for Cairo along the coast road.

Hamdi Eid Sekr, a local schoolteacher, said he thought even the United States should make a contribution to El Arish. Celebrating with hundreds of other El Arish residents in the town square, he said: "After this, I want America to build a new city in the Sinai, named Camp David. No, three cities, one named Camp David, one named Jimmy Carter and one called Shalom-peace."

While the revelry in El Arish continued into the hot afternoon, residents of nearby Jewish civillian settlements-who will have to leave the Sinai-were burning tires and setting up raodblocks in an attempt to stop the withdrawal of army vehicles.

Demonstrators from Yamit, a Jewish town on the coast, blocked the Gaza-El Arish road for several hours, stacking up scores of army turcks and other vehicles. The settlers said they will continue to try to impede Israel's withdrawal from the peninsula.