THE ISRAELIS seem poised on the brink of a new stage of their policy of settling Jews in the occupied West Bank. From planting settlements mostly in open rural land where few or no Arabs need be displaced, the cabinet is moving toward authorizing colonies to built-up areas where many Arabs live. The cabinet move was taken in the atmosphere of high emotion generated by the murder of a Jewish student in the Arab West Bank city of Hebron. Some 3,000 Jews now live in a Hebron Suburb, Kiryat Arab, where a handful of families moved without authorization in 1968; not long ago a handful of families, with Israeli army support, moved in the same manner into central Hebron. The movement of Jews into the West Bank, especially into peopled areas, is the patented formula for further trouble.

Some Israelis still try to treat Jewish settlement in the West Bank as an issue with two sides: so let's argue it out, but meanwhile let's not allow it to get in the way of more important questions. But you have to be pretty stupid to swallow that line. There is no more important question. Jewish settlements are regarded everywhere -- and most of all by the settlers themselves -- as Israel's way to establish its permanent control, leading eventually to outright annexation. The settlements undercut Israel's pledge to leave open to a negotiation, one in which the Palestinians who live there would take part, the "final status" of the West Bank. Moves like Sunday's cabinet decision provide further proof, to those who require it, that the government puts domestic imperatives ahead of its international obligations.

True, this is not exactly a "first." Though the Labor government had second thoughts, it began the settlements; the Begin government added its own religious twist. The real question is what the United States proposes to do about it. For it is the United States, so often accused (by Israelis as well as others) of weakness and vacillation in its foreign policy, that is held accountable by most of the world for the march of Israeli settlements -- and fairly so. And it is the United States that pays a large part of the price, not simply in its immense aid to Israel but in the diplomatic costs incurred in its dealings with other nations.

Further criticism of Israel on this issue is pointless. So is wrist-slapping. More direct tactics are called for. Why not put a measurable value on the settlements and let Israel decide whether it wants to forfeit that much from its American aid. This approach would precipitate a mighty confrontation between the United States and Israel. The issue is worth it. Time spent sorting out the settlements question would be time well spent. A president seeking to assert the American interest in foreign policy, and to show his own leadership, could do a lot worse.