Bir Zeit University, closed for two months by Isreal military occupation authorities because of recurring demonstrations for Palestinian independence, feverishly began making commencement preparations today following a surprise reversal by the government of orders closing the school indefinitely.

The campus, which hs been off-limits to its, 1,100 Arab students since May 2, buzzed with activity, as administrators hastily reassembled the faculty in anticipation of formal notification by the West Bank military commander, Gen. Binyamin Ben-Eliezer. The notice is expected tommorow.

Ben-Eliezer, reportedly on orders from Defense Minister Ezer Weizman agreed to reopen the school providing the administration accepts responsibility for the actions of students while they are on campus.

In another turnabout, Ben-Elizier dropped plans to prosecute the mayor of Nablus, Bassam Shaka, and more than a dozen other leading political figures accused of participating in a banned demonstration against the controversial Elon Moreh settlement. Nablus is about 20 miles north of here.

The planned trial of Shaka and Nablus council member Hikmat Masri, former speaker of the Jordanian parliament was particularly significant. If the officials had been found guilty of an offense deemed a "disgrace" under Jordanian law, they would be disqualified from holding a elective posts. Last year, the mayor of Beit Jala was convicted of such an offense and subsequently lost his job. There has been mounting opposition from abroad and from human rights organization within Israel over the government decision to close Bir Zeit and prosecute the Nablus officials.

Bir Zeit, the occupied West Bank's largest Arab University, long has been regarded by Israel military officials as a hotbed of Palestine Liberation Organization activity and a base for terrorist groups. Nablus, the largest city in the West Bank, similarly has been regarded as a center for Palestinian nationalists.

The most recent expression of opposition to Israel's occupation policy came yesterday when about 300 Jews and Arabs met at the Hebrew University in Jerusalem to protest the Bir Zeit closing. A coalition of peace activists and Communists, also meeting yesterday, announced plans for a series of demonstrations in the West Bank to protest the Nablus prosecution.

Students and faculty members interviewed at Bir Zeit University today said they were surprised by the disclosure of the military governor's ruling, but they would not stifle political expression on the campus.

While there were no PLO flags flying in Bir Zeit village today, as there often are, students did not appear subdued as they discussed the reopening.

"I'm happy because the school is open, and we can continue the semester. But the Israelis should know that we are not going to be silent," said Khalid Abed Rabbo, a senior from Hebron.

Rita Giacaman, a Palestinian biology lecturer said, "I doubt if there will be less political expression. The students will be studying hard to make up the lost work, but our political ideas have become even more consolidated."

Gabi Baramki, university vice president said that while the administration agreed to accept responsibility for the student's on-campus activities, it could not be held accountable for what happens outside.

On May 2, during a demonstration, a student was shot in the chest by a passing resident of a nearby Israeli settlement. The incident occurred off campus.

Akram Hannieh, a university administrator said that Israeli officials may reopen the school "because they discovered after they closed Bir Zeit that demonstrations in the twon did not stop."

For two months, students have been continuing work by correspondence at home, and taking exams in instructor's homes. The Grand Hotel, in nearby Ramallah, became a center for final exams and at times its gardened terrace looked like a small campus quadrangle.

Shaka and the Nablus city officials, including trade unionists and Chamber of Commerce officials as well as council members and clerks, had vowed to use their trials as a forum for attacking Israela occupation in the world press.

Over the weekend, the military governor reportely implememted a series of punitive measures against Nablus residents, including restrictions on the numbers of visitors allowed in from Jordan to visit families, and reductions in imports and exports across the Jordan river bridges. Also, Shaka and other Nablus officials have been denied permission to leave the West Bank. CAPTION: Map, no caption, By Dave Cook - The Washington Post