Resentment over government hesitation to expropriate Arab land for expanding existing Jewish civilian settlements in the West Bank erupted today when residents of an ultranationalist outpost near here broke through their security fence and began bulldozing land for expansion.

Israeli Army troops quickly rushed to the site and sealed off the area, and the settlers agreed to withdraw while the dispute is negotiated. But the core issue was not resolved and it threatened ultimately to cause a coalition crisis in Prime Minister Menachem Begin's government.

The National Religious Party, the key link in Begin's fragile Likud coalition, issued veiled threats to leave the government as Begin found himself squeezed between international pressure to slow down West Bank settlement activity and domestic pressure to speed it up.

If the NRP quit the government, the coalition would collapse, forcing new elections.

The issue is expected to come to a head at next week's Cabinet meetings when ministers debate a proposal to seize 43 acres of privately owned Arab land west of the West Bank town of Nablus.

The controversy began yesterday when a two-thirds majority of the ministerial defense committee overrode the chairman of the ministerial settlement committee, Ariel Sharon, and refused to approve the seizure of Arab land for expansion of the Elkana outpost in the Shomron Hills.

The committee also ignored Sharon's request to expropriate Arab land for six other settlements, and it referred the matter to the full Cabinet. Normally, the committee makes decisions on land expropriation and the Cabinet pleanary discusses them only if individual ministers appeal.

Reacting to the decision, the inhabitants of the Ofra settlement near Ramallah, just north of here, early this morning broke through a security fence and set up a new perimeter on Arab land.

With a rented bulldozer they began leveling ground and erected a make-shift synagogue.

In contrast to many of Israel's highly developed and industralized settlements in the West Bank, Ofra is a small bedroom community consisting mainly of mobile homes and temporary prefabricated bungalows. Built by the ultranationalist Gush Emunim group, it is generally regarded as one of Israel's "facade" settlements intended to establish a Jewis presence as an expression of territorial claims.

Built in 1975 on a 12-acre former Jordanian Army base, Ofra has served as a suburban home-site for Gush Emunim settlers, many of whom work in Jerusalem. Some residents even maintain apartments elsewhere and visit Ofra on weekends.

After the arrival of Israeli troops, the settlers agreed to withdraw while their leaders discuss the issue with Defense Minister Ezer Weizman.

The Cabinet is divided sharply on the issue of expropriating Arab land, with Seizman and Foreign Minister Moshe Dayan opposed to seizure of private property, arguing that it could impair the peace process and turn international opinion against Israel.

Moreover, Deputy Prime Minister Yigael Yadin, leader of the Democratic Movement wing of the coalition, is opposed to the aggressive settlement policy advanced by Begin and Sharon. The movement also is essential to maintaining the Likud coalition.

The most serious threat, however, stems from the National Religious Party which is under increasing pressure from the Gush Emunim and other rightist elements of its constituency to demand settlement expansion.

In order to obtain Knesset approval of the Camp David peace treaty, Begin made an agreement with the NRP faction, which reportedly included promises of an aggressive West Bank settlement policy.