tCabinet voted today to expand seven existing Jewish civilian settlements in the occupied West Bank, but it decided against expropriating privately owned Arab land for that purpose.

Instead, the Cabinet decided unanimously to expand the civilian outposts by using so-called state land, or public domain land, which before the 1967 Six-Day War was owned by the Jordanian Crown Council.

The decision appeared to defuse -- for the time being at least -- an oftpostponed showdown in Prime Minister Menachem Begin's government, which could have precipitated a crisis in Israel's fragile parliamentary coalition. But it failed to satisfy the ultranationalist Gush Emunim movement, which said the government failed to adopt an aggressive settlement policy because of pressure from the United States.

Initial reaction from West Bank Palestinian leaders was critical. Elias Freij, mayor of Bethlehem, called the vote "another big, nail in the coffin of peace." He said he suspects the government will seize land cultivated by Arabs and them claim it as state land, saying the title is in doubt.

The immediate issue resolved today was the planned expropriation of about 1,000 acres of mostly Arab-owned land surrounding seven settlements in the Samarian Hills. Advocates of an aggressive settlement policy had regarded the vote as a litmus test of the future of the government's settlement activity. Opponents said approval of the seizure would wreck the Egyptian-Israeli negotations on proposed autonomy for the 1.1 million Palestinians in the West Bank and Gaza Strip

Tension surrounding the Cabinet's debate was heightened when Foreign Minister Moshe Dayan threatened to quit the government in the ministers approved the land seizure.

While the hard-line majority of the 20-member Cabinet appeared ready to approve expropriation, such a decision would have strained severely the already deeply divided Likud government and further weakened Begin's parliamentary majority, which through gradal political attrition has slipped from 77 members of the Knesset to 65.

However, after a six-hour closed-door debate, Cabinet secretary Aryeh Naor told reporters, "We are not going to confiscate or seize or expropriate one inch of private land . . . We are going to use government land, according to the definition of the attorney general."

Unexpectedly, rightist Agricultural Minister Ariel Sharon, the Cabinet's most vocal advocate of settlements, prosposed the compromise. According to Cabinet sources, he finessed the unanimous vote with a detailed explanation of the needs of each outpost and the available surrounding land.

Although Naor insisted it always has been the Cabinet's policy to expropriate private land when settlements were needed for security purposes, the decision today sharply contrasted with the government's practice in the West Bank in the past 2 1/2 years.

Naor could not estimate the amount of state land to be used for expansion of the seven outposts, but government sources said it will be about one-fourth of the approximately 1,000 acres of private land that had been sought.

One problem certain to surface during the expansion of the seven settlements is the ambiguity of ownership of land in the West Bank.

According to Palestinian attorneys, there are three categories of land that persistently come into dispute.

There is mulk land, or private land for which the owner has clear title.

And there is miri land, for which the there is no clear title, but which the farmers have cultivated for generations and which is registered with Jordan's Ministry of Finance for tax purposes.

Lastly, there arejiflik lands, which also have been cultivated for generations and which before the British Mandate were under the title of the Ottoman Sultan. The farmers claim that their ownership of jiflik land was recognized by the British and Jordanian governments and that this kind of property cannot be considered "state land."

When questioned about the definition of state land, Naor said the Cabinet would be guided by the attorney general, although the Cabinet secretary said he understood that jiflik land would not be expropriated if it were cultivated.

Although details of the Cabinet decision remain secret, it is known that Begin promised Interior Minister Yosef Burg, titular head of the National Regligious Party, that Israel would pursue an aggressive settlement policy, expanding existing outposts and building new ones. Burg extracted the promise partly to mollify the hawkish members of the party and partly to satisfy the demands of Gush Emunim, which is closely allied with the National Religious Party.

While Begin's critics persistently charge that the prime minister is a "hostage" of the Gush Emunim as a reslut of the Camp David compromise and that he is intimidated by the militant organizaton's frequent demonstrations, Israel's form of government lends itself to that kind of special interest pressure. Begins Likud ticket did not receive a parliamentary majority in the May 1977 elections, and the coalition government could not have been formed without the National Religious Party.