The ultranationist Gush Emunim erected 40 symbolic "observation posts" today stretching from Nablus in the north to Hebron in the south of the West Bank to protest the latest development in Israel's settlement policy.

As fast as Army troops tore down the illegal outposts, other militant settlers erected new ones in defiance of mass arrests.

Their actions were to protest the Israeli government's decision to expand existing outposts in the West Bank only on public or unregistered land.

[In Washington, State Department spokesman Hodding Carter repeated the U.S. stand that West Bank settlements, whether new or expanding, are illegal and "impede the Middle East peace process." Carter added, "We noted the Cabinet's assurance that no private land will be taken" and said that "any restraint is in the right direction." But he said the United Staes remained concerned by "any settlement activity including the acquistion of any land."]

For different reasons, Palentinian leaders in the West Bank and in East Jerusalem also condemned Sunday's Cabinet compromise on the use of land for expanding settlements, calling the decision a "camouflage" to mask Israel's real intentions to seize thousands of acres of Arab-cultivated land that is not registered or whose title is ambiguous.

And the Peace Now movement and the Sheli [Peace and Equality] Party, joined by leftist members of the opposition Labor Party, bitterly criticized the government's land policy. They said the Cabinet "proved that crime pays," referring to the erection of illegal outposts by Gush Emunim in recent weeks to apply pressure on the government.

The discordant voices from the left and the right turned what first appeared to be a tactical finesse by Prime Minister Menachem Begin into a political nightmare for the already beleaguered Cabinet. Deputy Defense Minister Mordechai Zipori summed up the siege-like atmosphere succinctly when he said, "This is a day of test for the government of Israel as how it acts with respect to violators of the law."

But as of tonight, only 21 members of Gush Emunim out of several hundred demonstrators were reported to have been arrested, although there were signs the Army was preparing for more concerted action. Squatters at 20 sites bedded down for the night, some of them still undetected by the Army. 2

In the day's most bizarre incident, Knesset member Moshe Shamir, one of parliament's staunchest conservatives, drove and was fired upon by an Isreli soldier. Shamir was not injured.

While virtually all members of the ministerial coalition emerged from Sunday's Cabinet meeting professing satifaction with the compromise, Gush Emunim's bitter reactions today are certain to be felt by its close ally, the National Religious Party, whose 12 Knesset members comprise the major partner in Begin's gragile Likud coalition. An NRP walkout would topple the government.

In an oft-postponed showdown on the government's settlement policy on Sunday, the Cabinet grappled with the question of whether to expropriate about 1,000 acres of private Arab land in the West Bank for settlement "thickening." The issue deeply divided the Cabinet. Foreign Minister Moshe Dayan threatened to resign if the private land seizure scheme was approved and Ariculture Minister Ariel Sharon hinted he would quit if it were not.

In a compromise that seemed at first glance to be all things to all people, the Cabinet announced that about 1,000 acres of public land -- or so-called "state land" that before the 1967 war was owned by Jordan -- would be used to expand seven settlements in the Samarian Hills.

Later, the government suggested that its definition included land not registered, although Palestinian Arabs may claim ownership.

Government sources said they would try to docment prior land use by using pre-1967 war aerial photographs of the West Bank.

Since only a small portion of West Bank land -- about 250,000 acres of the area's 1.7 million aacres -- is registered as state land, and since an even smaller portion has been surveyed and legally deeded to Palestinians, West Bank Arab leaders immediately concluded that Large tracts of unregistered but cultivated property would be seized for future settlement.

For their part, the militant settlers just as quickly concluded that Begin was reneging on a promise to settle the West Bank with hundreds of thousands of Jews.