The first direct trade contract between Egyptian and Israeli firms, signed by news distributors from both countries, means that in less than three weeks newspapers and magazines will be transported on a daily basis in both directions across the Sinai Peninsula and the Suez Canal.

Signing the agreement comes as Israel prepares to complete its interim withdrawal from approximately half the Sinai on Jan. 26. And the process of normalization of relations between Egypt and Israel -- after 31 years of intermittent war -- begins to accelerate.

As a result of the agreement, Israeli publications in Hebrew, Arabic and English will be sold in all major Egyptian cities, and Egyptian newspapers and magazines will be sold throughout Israel and in the occupied West Bank and Gaza Strip.

Each side will supply the publications every morning at the northern Sinai border crossing of El Arish, according to the contract approved by the respective foreign ministries. The Israeli newspapers will be sent to Egypt on a bus that makes a daily trip across the desert.

Ari Rath, editor and managing director of the English-language Jerusalem Post, who was a member of the negotiating delegation that returned last night from Cairo, said today he expected the Egyptian circulation of his newspaper to reach 1,000 within a few months.

"I think ultimately there will be quite a demand," Rath said. Egypt's only English-language paper, the Egyptian Gazette, carries far less Middle East and world news than the Post. The International Herald Tribune often arrives in Cairo from Europe several days late.

The Egyptians, Rath said, were particularly anxious to sell Al Ahram and other Arabic newspapers in the West Bank and Gaza Strip, presumably to encourage Palestinian interest in the moribund autonomy negotiations.

Rath and other Israeli delegates traveled to Egypt last week by automobile. He said the overland route poses a number of technical problems, principally the timing of the shipments to coincide with the Suez Canal ferry crossing that operates only 1 1/2 hours daily, because of canal traffic.

The Israeli government has adopted a hands-off policy on what Egyptian newspapers and magazines may be sold in the West Bank and Gaza Strip, although technically the publications could be subjected to review by the military censor here. However, it was understood that the Egyptian government will be relied upon to curtail distribution of publications that might be critical of the negotiations with Israel and the autonomy process.

Meanwhile, government officials said an Israeli technical team will go to Cairo next week to look at potential sites for the Israeli Embassy. The following week, an Egyptian team will visit Tel Aviv for the same purpose.

On Jan. 26, legations will be established in both countries, and a month later ambassadors will be exchanged. Israel expects its embassy staff, which is to be headed by Eliahu Ben-Elissar, director general of the prime minister's office, to number about 20. The Egyptian mission is expected to be smaller.