Jerusalem, glowing ocher in the sunlight, lies just over the next hill, on the other side of Bethany a short drive away.

Down the slope of this rocky mound in the opposite direction is an Israeli Army camp, part of the military forces that have occupied the West Bank since Israel conquered it in the 1967 Middle East war.

Here at the top are the first signs of construction of a settlement dedicated recently by Israeli Housing Minister David Levy. It will be another link in a chain of Jewish settlements designed to surround Jerusalem and bind it forever to the state of Israel.

Maaleh Adumim looks barren, dry and worthless to a visitor. But it has a special significance in that chain - it will provide a strong Jewish presence on the last major approach to Jerusalem that still retains a primarily Arab character, the road east to Jericho and on toward Jordan.

Maaleh Adumim also underscores the difficulties of the current Palestinian autonomy negotiations among Israel, Egypt and the United States. On a smaller scale, it symbolizes the disputes between the Israelis and West Bank Arabs who say their land is being expropriated for such settlements.

Perhaps for these reasons, the Israeli government invited the public to attend the little ceremony in which Levy laid the cornerstone. About 1,000 persons attended and hbard him proclaim:

"There will no longer be a line between what we had before the Six-Day War (of 1967) and what we have in these days of redemption."

Another Israeli government official explained further, "We are putting the settlements all around Jerusalem so there will never be any question of whether it is part of Israel."

To the north of Jerusalem, just southwest of Ramaliah, the Givon settlement has been built and plans have been drawn up for three nearby settlements in the same Givon bloc, commanding the road to Ramallah. Just north of Ramallah lie the four settlements of the Beit-El bloc, commanding the road north from Ramallah toward Nablus.

To the south of Jerusalem, just southwest of Bethlehem at points commanding the road to Hebron, Israelis have built half a dozen settlements and have started preliminary work on another at Efrat. The communities are part of the Etzion settlement bloc scheduled to expand on both sides of the road within five years.

To the West is Israeli territory within the pre-1967 boundaries. And now, with Maaleh Adumim to the east, the encirclement is complete, putting an Israeli imprint on land all around the holy city.

Levy's dedication of Maaleh Adumim also had a special importance because the West Bank land on which it is being built is, in principle, the subject of Palestinian autonomy negotiations among Israel, Egypt and the United States. The municipality of Jerusalem, extended and annexed by Israel after 1967, ends about a mile before the road east from Jerusalem winds by this hillside.

The most recent round of the talks ended at Haifa in northern Israel last week, three days before Levy held his cornerstone ceremony. They resume in about 10 days in Alexandria, Egypt, and while the diplomats there discuss the future of this land, Israeli settlers plan to build on it.

The State Department issued a sharp protest two days after Levy's ceremony, underscoring the U.S. view that such settlements are illegal and that they create obstacles to progress in the autonomy negotiations.

But the chief Israeli negotiator, Interior Minister Josef Burg, said the cornerstone meant nothing for the talks because a little temporary settlement sits on the next hill to the east, making the decication of Maaleh Adumim "just a case of strengthening an existing settlement."

It is an ideal site, only 10 minutes' drive over a good road from the Jerusalem city center. Bulldozers already have sliced a few access roads through the chalky soil up the hillside to the construction site.

The first families are due in 1981, once their apartments are finished. If enough Israelis can be lured away from city living to settle here, 5,000 dwellings are to be built within about five years.

By then, Israeli planners say, the new Jewish town will be a fact no matter how the autonomy negotiations turn out, and any attempt to clear Israelis from the West Bank will be that much more difficult. Also by then, they say, the community will have its own stadium and a park to show off the ruins of an ancient water system. Most of its inhabitants probably will be commuting to work in Jerusalem.

If the experience of other West Bank settlements is followed, Maaleh Adumim also will have a high fence around it with a watch tower and floodlights at night to prevent Palestinian guerrillas from slipping close enough to attack.

Besides the Palestinian fight for the West Bank as a site for a Palestinian state, several Palestinian merchants from Jerusalem say they have a more immediate and personal claim to Maaleh Adumim. They contend they bought the land on which it is to be in 1963 when the land was still under Jordanian administration.

Rashid Hijazi says he and his three partners who bought the land had some access roads built and a survey taken with the idea of subdividing it for a housing development.

Hijazi has a briefcase full of documents, including a map stamped by the Israeli military administration of the West Bank, which he says prove his ownership. About a year ago some Israeli officials came to his Jerusalem shop to pay him what he understood to be compensation for his land but, he says, he threw them out.

"I will not sell the land," he said in an interview. "I have been trying to get a permit to build on it, but they told us all building permits for that area were closed off."

The Israeli government says all 9,000 acres of the land for Maaleh Adumim were expropriated in 1975 from Arab landowners who were not cultivating it.

Hijazi says he has not heard about the expropriation and that his first clear idea of what was happening came when he saw bulldozers scraping out the access roads a few months ago. CAPTION: Map, no caption, By Dave Cook - The Washington Post