Arab nations applied "pressure unprecedented by Ottawa standards" that led Prime Minister Joe Clark to shelve quietly his plan for moving Canada's embassy in Israel from Tel Aviv to Jerusalem, well-informed Canadian sources said yesterday.

Clark's pledge, which he made to Toronto's Jewish voters during the recent election campaign, would represent a de facto recognition of Israel's claim to complete authority over the holy city, something the Jewish state long has sought.

Clark, the Canadian sources said, had to abandon his plan in the face of a concerted Arab effort following the election that included joint diplomatic pressure as well as direct and indirect threats against Canada's multibillion-dollar commercial interests.

Arab ambassadors in Ottawa were joined in the campaign by top Canadian business figures, who repeatedly visited Clark to warn him about the threatened loss of large existing or pending contracts in the Middle East the sources said.

Jean d'Grandpre, chairman of Bell Canada, who subsidiary Northern Telcom was awarded a $1 billion contract to build a new telephone system for Saudi Arabia, reportedly was among the businessmen.

The Arab ambassadors in Ottawa held a joint meeting with External Affairs Minister Flora MacDonald to protest the planned embassy move and to warn her of "disastrous effects" it would have on Canadian business interests throughout the Arab world, the sources said.

The campaign of unspecified Arab threats was accompanied by a certain amount of bluster. Iraq publicly threatened to halt its oil supplies to Canada, which imports only 18 percent of its needs, mainly from Saudi Arabia, Libya and Venezuela.

The director of Arab Monetary Fund, an Abu Dhabi-based organization endowed by wealthy Arab nations for helping poor Arab countries, threatened to withdraw all its assets from Canadian banks. The sources said that it was not clear that the fund had any assets in Canada.

The sources said, however, that the depth of Arab opposition convinced Clark and his advisers that the pledge on Jerusalem, if carried out, could entail substantial economic penalties.

Apart from large contracts, Canada's exports to the Middle East are running at about $900 million annually and officials in Ottawa said somewhere between 55,000 to 100,000 canadian jobs are directly dependent in these exports.

Moreover, while oil-rich Arab nations have only moderate investments in Canada, they hold billions of Canadian dollars of Euro-Canadian dollars. Any sudden shift from the Canadian currency into other currencies would further depress the already battered Canadian dollar.

The Arab pressures coincided with a strong opposition to the embassy shift by the United States, which views it as unsettling and potentially damaging to the current stage of Israeli-Egyptian talks on Palestinian autonomy.

In an attempt to defuse the issue, Clark held a joint meeting three weeks ago with all Arab ambassadors to Canada and subsequently met separately with the Israeli and Egyptian ambassadors.

"The pressure was extremely strong," a well-informed source in Ottawa said. "There were economic considerations but there was one political aspect that had considerable weight - the move would endanger Canada's U.N. peacekeeping role."

The powerful bureaucracy of Canada's Department for External Affairs, which is known to have opposed the Jerusalem plan, drew up a face-saving plan that would, in effect, kill Clark's pledge. The prime minister last week accepted the plan to appoint a "study commission" headed by former Conservative Party leader Robert Stanfield.

Stanfield is expected to visit various Arab countries over the next year or so, presumably to study possible effects the embassy plan would have. He eventually would have to draw up a series of recommendations for the government.

Well-informed sources in Ottawa said Stanfield is known to have regarded Clarke's pledge to be a mistake all along.

Clark has also conceded that his pledge may have been ill advised. It did not appear to have helped him much in winning 136 of the Parliament's 282 seats in the May 22 elections.