Israel's Supreme Court today temporarily prevented the government from taking over the East Jerusalem Electric Co. until the court issues a final ruling on controversial plans to seize the Arab-owned company.

Without remarking on merits of the case, which has become the focus of a major dispute in Israel, the three-judge panel issued a temporary injunction blocking the Israeli Energy Ministry from carrying out its plan to take control of the company Thursday. The court did not indicate when it will make a ruling.

Anwar Nusseibeh, chairman of East Jerusalem Electric, the largest Arab-owned business remaining in the West Bank, interpreted the court's postponement as a good omen.

"I have been trained in the legal tradition, and I have tremendous faith in the essential decency of the system," said Nusseibeh, a former Jordanian defense minister.

Many of the company's 400 Arab employes who gathered in the rain outside the courthouse in Jerusalem's Russian Compound for the decision also appeared encouraged by the continuation of the proceedings. Some had warned that a takeover by Israel could result in sabotage of equipment and business records.

The government attorney, Yoram Bar-Sela, argued today that the planned seizure was not a political decision, but was based purely on economic grounds because of the alleged inefficiency of East Jerusalem Electric's diesel generating system. Energy Minister Yitzhak Modai said that if the firm had been Israeli, it would have been shut down long ago.

The firm distributes power to about 350,000 Arab residents of East Jerusalem and the West Bank, as well as to 15,000 Jews in new neighborhoods on the outskirts of the capital and in West Bank settlements. Its attorneys said the real purpose of the takeover was to eliminate Palestinian economic independence and to disrupt financial links between the West Bank and Jordan, which supports the company.