Britain and france today denounced Israel's attack on an Iraqi nuclear reactor and, while stopping short of a call for mandatory sanctions, endorsed a Security Council resolution that would condemn the attack and demand that Israel pay Iraq for the damage it caused.

Japan and Ireland joined in the unanimous criticism of Israel's action, calling it "unjustifiable" and "profoundly misguided." All four nations warned that destriction of the Osirak reactor outside Bagdad eight days ago threatens the international nuclear safeguard system.

These first statements by Western nations came on the third day of a council debate, requested by Iraq, as negotiations on a resolution in response to the attack continued behind the scenes.

Western diplomats said Iraq has ruled out a proposal by Tunisia and other moderate Arab nations for two resolutions -- one without, sanctions, which could win approval, the other calling for an embargo against Israel, which would fall before an American veto.

U.S. officials have indicated that the Reagan administration would support a resolution condemning the Israeli raid, but would veto any measure that is "punitive in nature."

Speaking to the Security Council, French Ambassador Jacques Leprette rejected the Israeli contention that the reactor, which had been supplied by France, was designed to produce nuclear weapons. Leprette argued that safeguards on the reactor were "quite satisfactory" and that it would have been "absurd" to divert the fuel and use the plant to make an atomic bomb.

"A firm resolution," he said, 'must contain a condemnation of Israeli action, a solemn appeal to Israel that it end such military actions, and a call for equitable reparation for the destruction and damage."

The Iraqis, however, are believed to be eager to avoid any reference to reparations in the resolution, apparently because they do not wish to be seen -- even in theory -- recognizing the Jewish state, much less accepting its cash.

Britain and Ireland endorsed the French proposal.

Speaking for Britain, Sir Anthony Parsons said London does not believe "Iraq had the capacity to manufacture fissile material for nuclear weapons," and thus "there was no instant or overwhelming necessity for self-defense."

Irish Ambassador Noel Dorr questioned the wisdom of seeking "to impose formal and mandatory sanctions on Israel," but he said the resolution should also include an appeal to all Middle East states to accept international inspection of their nuclear facilities.

Israel refuses to make its nuclear installations available for inspection and has not signed the Nuclear Nonproliferation Treaty. Iraq, which has signed the treaty, submits its installations to inspection by the International Atomic Energy Agency.

If Israel's preemptive action is not condemned, Dorr said. "Any state could justify an offensive military action against any other at any time. We and other small countries cannot condone anything which would bring such a world closer to reality."

Japan's Masahiro Nisibori warned that "by violating the boundaries of other countries in such an arrogant manner," Israel -- which claims the right to live in peace behind secure boundaries -- "has undermined its own credibility in the international community."

The Egyptian ambassador, Esmat Abdel Meguid, insisted that his country's peace treaty with Israel "did not and does not justify or warrant acts of aggression." The blame, he said, "should be put on the actor and not on the [Camp David] accords."

Like other Arab spokesmen. Meguid said condemnation is not enough. But unlike them, he did not specify the imposition of sanctions. Egypt's national interests, he insisted, "are one and the same" as those of the other Arab peoples.

The Soviet speech contained endorsement of Iraq's demand for sanctions and the implication that Washington is responsible for the Israeli raid. Soviet Ambassador Oleg Troyanovsky said it is "difficult to imagine the United States did not know in advance of the attack," which was carried out "with the political cover" of Washington.

Despite the clear preference by the West and moderate Arabs for a resolution that would avert an American veto. Iraqi Foreign Minister Saadoun Hammadi continued to insist publicly on sanctions.

The latest draft resolution circulated to delegations contains a condemnation of Israel, a reaffirmation of Iraq's right to develop nuclear capability, a call for an embargo on economic and military assistance that might enable Israel to commit "aggression" and a demand that Israel open its nuclear facilities to inspection.

Iraq goes before caucses of the 40 nation Islamic Conference and the Nonaligned Movement on Tuesday to seek their endorsement of his proposal. Only then will the real bargaining with the West begin. The council is not expected to vote until Wednesday or Thursday at the earliest, desptie pleas for speed from its president, Porfirio Munoz Ledo of Mexico.