Since President Anwar Sadat made his dramatic visit to Israel two years ago, Israeli and Egyptian perceptions of each other have changed significantly.

Two years after Anwar Sadat stunned the world by visiting the Jewish state that his armies tried four times to destory, most Iraelis' preceptions of Egyptians have changed dramatically for the better. Yet Arabs in general -- and Palestinian Arabs in particular -- remain objects of suspicion, distrust and even overt hatred by many of their Semitic cousins in this enclave amid a wide world of Islam.

President Sadat declared during his historic visit here that 70 percent of the barriers to peace between Arabs and Israelis were psychological. This definition, when applied to Palestinians and their Arab brethern east of Suez, appears as valid today as then.

As many Egyptians have done in their homeland, Isarelis have gradually come to disjoin Egypt from the Arab world and have begun to think of Egyptians as part of an ethnic entity in itself, far removed from the belligerency that characterizes such nearby Arab states as Syria, Jordan, Iraq and Saudi Arabia.

When "peace fever" swept Israel following the Egypitan-Israeli peace accords, the euphoria infected all segments of society and many aftereffects linger as far as Israeli preceptions are concerned.

Thousands of Israelis have applied for visas to visit Egypt and newspapers are full of travel advertisements promising low-priced "peace excursions" to Cairo.Egypt guide books in Hebrew are hot items on the booksstands here, and Lawrence Durrell's "Alexandria Quartet" is enjoying a surge in popularity.

With Sadat and Israeli Prime Minister Menachem Begin now on first-name terms after seven highly publicized summit meetings, the memory of death struggles in the desert with Egyptian soldiers in the wars of 1948, 1956, 1967 and 1973 is receding.

If there is worry about renewed war with Egypt, it almost always is in the context of an Egypt without Sadat, as expressed by Yigael Ron, 27, a mathematics student at Hebrew University, who is a tank corps veteran of the 1973 war.

"The Egyptians happen to have a brave leader who realizes he can reach his goals through peace," Ron said. But he quickly added this caveat: "Unfortunately, the Egyptians could just as easily follow an extremist leader if Sadat were to fall from power. In the absence of a geniune democracy there, a change of leadership doesn't necessarily reflect a change in the people's wants. But a change in leadership can cause a change in the people's wants."

Public opinion polls indicate that most Israelis trust in peace with Egypt and are satisfied with the way relations are progressing. A national survey conducted by the Institute for Applied Science on the eve of the second anniversary of Sadat's visit showed 70 percent of the respondents being comfortable with the peace process. Sixty-eight percent said they expect relations with Egypt to improve even more.

Intervews by The Washington Post with a cross-section of Israelis appeared to support that view.

"My opinion of Sadat has changed . . . At the begining, I thought the Egyptians would overthrow Sadat, but I see now they are becoming more moderate," said Galo Hoffman, an Immigrant from Romania. Yair Harel, said, "Things have changed. I see that it's now possible to live with the Egyptians."

But when the subjectis switched to other Arabs, to the 1.1 million Palestinian Arabs living in the occupied West Bank and Gaza Strip, the composite preception changes drastically.

It changes most dramatically among the 57 percent of Israel's 3.5 million population that comprises the Sephardic community -- Jewish immigrants from Moslem nations in northern Africa and west Asia Minor who have vivid memories of harsh treatment at the hands of Arabs in such hostile capitals as Baghdad, Damascus, Aden and Rabat. "Arabs are for killing," an immigrant from Syria said with extraordinary intensity in his eyes during a discussion of terrorism.

Terrorism has become an almost everyday occurence in Israel. The thud of a bomb exploding in the Jewish open-air-market, or in a schoolbus or at a soldiers' hitchhiking station, affects the average Israeli's preception of Palestinian Arabs.

To Israelis, terrorism is synonymous with Palestinian nationalism and the Palestine Liberation Organization.

Surveys of Israeli attitudes toward Palestinians now run about 65 percent against negotiating with the PLO even if it recognizes Israel's right to exit. The findings fluctuate 10 points up or down, depending on whether or not there was a terrorist attack that week.

Beyond the widespread association with terrorism, the Palestinian image among Israelis has suffered since the occupation of the West Bank 13 years ago. This is a result of Impressions formed through exposure to the thousands of Arabs who work in menial jobs in Israel -- digging sewer ditches, sweeping streets and washing dishes.

"Arab wages' is a term Israelis use to describe low pay, and "Arab workmanship" is often heard to descirbe dissatisfaction with a product.

The dean of Haifa University's School of Education, Adir Cohen, cited these commonly heard phrases in a recent study of 1,000 children's books as suggesting that the sterotype of the Arab is learned early by Israeli children.

What emerged from the surveyed books, Cohen said, is the image of an Arab having "a narrow forehead, a scar and a moustache . . . the character traits most commonly attributed to him are cowardice and a lack of resourcefulness."

Sadat's vist ot Jerusalem -- and the subsequent peace treaty -- has had little impact on the image, social scientists say, even though some organizations are trying to correct it.

Zvi Dagan, the director of the International Cultural Center for Youth, which works to encourage understanding between Arab and Israeli children, says the future of relations lies with the young.

"All too often, Israeli kids see Arabs as janitors in their apartment buildings. They don't see them in their homes as people with families and common aspirations, and they become susceptible to fixed ideas about atrocities and the like. The kids are a barometer of how the next generation will regard Arabs, so it is important to do something now," Dagan said.

He added, "Before Sadat's visit, when you thought of Egyptians, you thought of Arabs. Now, when you think of Egyptians, you think of neighbors. tBut, unfortunately, when you think of Palestinians, you think about something else -- there are still hostilities, and we have to start thinking of Palestinians as neighbors if anybody's attitudes are going to change."

Once an Arab, always an Arab. Nothing has changed for me. Terrorism still exists, doesn't it?" -- Miriam Kharif, 31, a Jewish immigrant from Morocco