One the eve of a crucial court hearing to determine whether Israel can take over the Arab-owned East Jerusalem Electric Co. -- the largest Palestinian business remaining in the West Bank -- Israeli authorities have summoned the firm's employe representatives to discuss an "orderly transfer."

Energy Minister Yitzhak Modai said through a spokesman that the government remains determined to take over the franchise of the electric company. But union leaders of its 400 employes said they will not cooperate with the Israelis if the High Court rules against them. Some employes suggested there could be sabotage of equipment and business records.

The planned takeover on Thursday has become the focus of a major controversy in Israel, with Israeli municipal officials of Jerusalem warning that it could touch off Arab disturbances in the city and some members of the opposition Labor Party demanding an urgent debate to discuss the political consequences.

Palestinian sources said there will be a demonstration Tuesday, when the High Court is scheduled to begin its deliberations, and that a general strike probably will be called in the West Bank if the takeover is upheld.

Israel's Energy Ministry has offered East Jerusalem Electric $3.9 million in compensation for its franchise and equipment. But the company chairman, Anwar Nusseibeh, maintains that, if the directors were interested in selling, the assets alone are worth $170 million.

Nusseibeh said today he would not discuss his legal arguments while the case was being adjudicated. But sources in the company said the arguments will be based on the contention that Israel is not a legal successor authority to Jordan in East Jerusalem and the West Bank, conquered from Jordan by Israel in the 1967 Six-Day War. Therefore, the sources said they will argue, Israel does not have the right to take over contracts between residents of the areas and the government of Jordan.

East Jerusalem Electric distributes power to about 350,000 Arab inhabitants of East Jerusalem and the Bethlehem, Ramalah and Jericho areas of the West Bank. In addition, about 15,000 Jews in new neighborhoods on the outskirts of the capital and in West Bank settlements and Army bases get their power from the company.

For years, the firm has been a sore point among many Israelis. Jewish customers complain about power distributions, poor service and deteriorating relations with the Arab management. Some also complain about the security risk of having an Arab company control power to isolated settlements.

Yitzhak, Shomron, spokesman for the Energy Ministry, said the Arab company is incapable of providing adequate service because it is financially unstable and because it produces power from inefficient diesel generators. Moreover, Shomron said, East Jerusalem Electric already buys about two-thirds of its current from the Israeli electric grid.

However, electric company officials responded that they have tried to upgrade their equipment, but that the Israeli government has refused to allow them to import new generators. They noted that in the last year the firm has paid off all its debts and has aquired cash reserves as a result of grants from Jordan.

"The company is a source of Arab pride, and that's why the Israelis want to take it over. They don't want us to have anything that resembles independence," said a source close to the company's board.

Sources in the firm also complained that the real purpose of the planned seizure was to further judaize East Jerusalem and the West Bank and disrupt financial links between the West Bank and Jordan, thereby making the Arab inhabitants more dependent on Isael's economy.