In a sharp exchange of rhetoric, Egypt and Israel escalated their dispute about the Palestinian autonomy negotiations today, casting doubt on the early resumption of the stalemated talks.

Egyptian President Anwar Sadat criticized an Israeli law perpetuating the status of Jerusalem as the Jewish state's undivided capital. He said the land had been advanced by "fanatic elements" in the Knesset (parliament) and was endorsed by the government of Israeli Prime Minister Menachem Begin.

For his part, Begin said Egypt's reasons for refusing to resume the autonomy talks were "only pretexts," and other Israeli officials indicated that the government will dig in its heels before agreeing to restart the negotiations on the basis of new concessions.

Nor was the trading of charges the most ominous sign emerging from the collapsed negotiations. A high-level Egyptian Foreign Ministry official suggested that before the autonomy talks can resume, Israel will have to withdraw the Knesset bill on Jerusalem and cancel its extensive plan to build Jewish settlements in the occupied West Bank over the next several years.

"We expect a change in attitude in the right direction," said Osama Baz, the first undersecretary of the Foreign Ministry and one of the more influential figures on Egypt's autonomy negotiating team. When asked what forms the attitude change should take, Baz replied, "By statements, by not going through with that [Jerusalem] bill." When pressed at a news conference on whether that included a stop to settlement building, Baz said, "Yes, exactly."

Baz stressed that he was not setting down preconditions or ultimatums. But at one point, he said, "We find it extremely difficult, if not impossible, to hold negotiations under this atmosphere."

Baz's remarks on settlements were triggered by Egyptian newspapers' attention Thursday to a 1978 Jewish Agency report calling for 49 new outposts in the West Bank and Gaza Strip in the next several years and a doubling of Israel's settlement population in the occupied territories.

The settlements issue is still subject to negotiations, Baz insisted, and by planning new outposts, Israel has "established facts" that will make bargaining all but impossible.

Baz also offered specific complaints about Israel's occupation policy in the West Bank -- a point that was mentioned only in passing Thursday when Deputy Prime Minister Butros Ghali announced that Egypt would not resume the autonomy talks. On Wednesday, Sadat, who a week ago suspended the negotiations because of a lack of progress, said they would begin again. On Thursday, however, Sadat abruptly changed his mind upon learning about the new law on Jerusalem.

Baz said Egypt also objected to the deportation of West Bank Arab leaders, the imposition of curfews by the military government, the detention of Arabs on suspicion of security offenses, the dynamiting of houses of security suspects and the closing of schools and colleges in the West Bank.

"These are not the confidence-building measures we asked for," Baz said.

By enumerating the concessions Egypt once again appears to be maneuvering into a corner and will ultimately have to make concessions if it wants to continue the peace process.

Surprisingly, Baz said he feels that there is "a possibility, but I don't think probability," that Israel's parliament will give final approval to the controversial Jerusalem draft law, which would prohibit the government from negotiating a change in the status of Jerusalem without having the law rescinded.

With only five opposing votes, the draft law passed the Knesset in its first reading, and was sent to committee for review before another reading and vote. Normally, such a lopsided majority on first consideration of a bill is indicative of certain passage in its final form. This is even more the case in an issue as emotional as the status of East Jerusalem, which was annexed by Israel after the 1967 war.

[Both Begin and Israeli Interior Minister Yosef Burg reiterated that there was nothing new in the Knesset resolution and asserted that Israel's claim to an undivided Jerusalem as its capital had been made on many occasions, special correspondent Yuval Elizur reported from Jerusalem.]

But Egypt has been just as adamant on East Jerusalem, insisting that it is part of the West Bank and should be controlled by Palestinians.

Emerging from prayers at a mosque today, Sadat said, "When the Knesset votes unanimously except for five votes to put the Jerusalem question in the shape it has been put by some fanatic elements of the Knesset, this means that the atmosphere that we are creating for reaching a just solution, especially on Jerusalem . . . is underminded."

Baz and other Egyptian officials have gone to great pains to note that it is now the United States' responsibility to play a more active role in breaking the impasse -- an observation that Israelis generally interpret as meaning more U.S. pressure on Israel.