Israeli Prime Minister Menachem Begin today invited Saudi Arabian Crown Prince Fahd to Jerusalem to address the parliament about his willingness, under certain conditions, to bring the Palestinians and other Arabs into a peace agreement with Israel.

Begin said that under two circumstances will Israel withdraw from the occupied territories it captured in 1967 -- a condition laid down by Fahd for Arab cooperation in the Middle East peace process -- but he invited the Saudi prince to present his case to the Knesset (parliament).

"I have to say that his demands, under any conditions, are rejected and are totally unacceptable. But he's invited. Perhaps he will convince me. Perhaps I will convince him," the prime minister said today in an interview with the Washington Post.

In an interview with The Post in Riyadh last week, Fahd, who continues to oppose the Camp David accords and their proposals for Palestinian autonomy, pledged Saudi involvement in the peace process if Israel formally declares its intention to leave the occupied areas.

It is unlikely that the crown prince would accept Begin's offer to visit Jerusalem, which the Saudis insist must be returned to Arab control. In last week's interview, he said Palestinian self-determination must be the key to any settlement.

Responding to Fahd's proposal, opposition Labor Party leader Shimon Peres said today, "I take it seriously. Not that I agree to his conditions, but it is a departure from the traditional Saudi Positions."

Asked what he felt the Israeli response should be, Peres said that an Israeli reply that it was "ready to negotiate on the basis of U.N. Security Council Resolution 242 would be the right response." The resolution calls for Israeli withdrawal from occupied areas, but does not propose Palestinian self-determination.

Begin also said today that he would welcome an American initiative to resume the suspended negotiations on Palestinian autonomy in the West Bank and Gaza Strip, but he said Israel will not solicit such an icebreaking move.

Begin also rejected an Egyptian proposal for a November deadline for the autonomy negotiations, suggesting that for "curious" reasons it had been timed to coincide with the U.S. presidential election.

As for the stalled autonomy talks, Begin said a U.S. move to schedule a resumption date was "not a bad idea."

But, the prime minister stressed, "we will not take the initiative to ask the Americans to come. If they take the initiative . . . I do suppose that would be acceptable."

He said a proposal by Egyptian Deputy Minister Kamal Hassan Ali to set November as a deadline for negotiations on a proposed West Bank-Gaza autonomous council posed a very serious situation.

"Why should we connect our negotiations with the election in the United States? What do our negotiations have in common with the United States elections? I reject it," Begin said.

In the wide-ranging interview with Katharine Graham, chairman of The Washington Post Co., and Post editors Begin also:

Said that no more than 10 new Israeli settlements will be built in the occupied areas, although existing civilian outposts will be enlarged. There currently are about 90 settlements in the West Bank, Gaza Strip and Golan Heights.

Said that "there were no reasons, there were only excuses" by Egyptian President Anwar Sadat after he suspended the autonomy talks earlier this month. He said he told Sadat, "You suspended the talks you have to suggest another date. . . . If you suggest another date we will consider it." s

Warned that there will be only "permanent bloodshed" in the occupied territories if Israel fails to retain control of security, and said that Egyptian proposals on the security issue are "completely a deviation" from the Camp David accords.

Dismissed as "absolute fancy" suggestions that Israel will be subjected to increased U.S. pressure after the November election. "If pressure is exerted, we will reject it," Begin said.

Begin coupled his qualified invitation to Fahd to address the Knesset not only with a blunt rejection of the Saudi leader's conditions, but with a stinging criticism of what he termed "horrible corruption," instability and military softness in Saudi Arabia.

When asked about U.S. arms sales to Saudi Arabia, Begin replied, "useless. Absolutely. They have no Army actually. They have no real Army. You give them the most sophisticated weapons in the world . . . It's useless, like in Persia. The shah had the largest concentration of American sophisticated weapons [and] the Army collapsed in 24 hours."

The prime minister said the same thing may happen in Saudi Arabia "because there is another flowering of the Khomeini revolution in Saudi Arabia . . ." He said last November's attack on the Grand Mosque in Mecca was "actually a coup d'etat" that revealed Saudi instability, an interpretation the Saudis reject. Fahd said last week the attack on the mosque was the work of "a few fanatics" and was "inflated" by the media.

Begin said withdrawing from the occupied areas, as demanded by Fahd, would jeopardize Israel's existence, adding, "and if anybody should threaten us with war, we do not succcumb to those demands, [and] then we shall fight another war."

Peres, however, said in his interview that what is lacking now is a "common base" for negotiations to solve the West Bank-Gaza problem. Resolution 242, Peres said, could serve as an "opening position" for Israel. r

Peres indicated that he was encouraged by Fahd's reference to Resolution 242, adding that the Arabs would have to realize that they "should not think that a permanent solution can be reached right away, however." He said they should be prepared to negotiate an interim solution for the occupied areas.

On the question of security in the West Bank when, and if, an autonomy agreement is reached, Begin said that during the Camp David negotiations, Israel pledged to redeploy its troops in the occupied areas to "specified" locations, and that the negotiators were adamant against accepting the term "agreed locations" because that would mean losing control of security.

"It's absolutely clear we have to withdraw part of our forces, which we are prepared to do," Begin said. But to yield control of security, he added, would create a vacuum that the Palestine Liberation Organization would fill at Israel's expense.

"They asked for a Palestinian state, and we shall never give that. It would be a real peril to the world," the prime minister said.

When he was discussing settlements, Begin placed a telephone call to Agriculture Minister Ariel Sharon, chairman of the ministerial settlements committee, and asked how many more new outposts Israel intends to build.

"Only 10 more then it's finished. This is what we need for our security," Begin said. He stressed that Israel would continue to "strengthen" existing settlements.

Critics of Begin's settlements policy contend that the government can disguise the actual number of settlements by building satellites to existing outposts and calling it expansion.