France has suggested that Iraq include other Arab nations as partners in operating a nuclear reactor to be built by French technicians to replace the one destroyed by Israeli warplanes, diplomatic sources said.

The idea, advanced by French Foreign Minister Claude Cheysson to the Iraqi leadership, would transform the proposed nuclear facility into a regional research center and ensure a long-term French presence and controls.

An extended French presence at the reactor has been reported as one of the new Socialist government's conditions for rebuilding the facility. Israel has cited fears that Iraqi scientists would use the reactor to make nuclear bombs as the rationale for last June's bombing raid. Prime Minister Menachem Begin has warned that Israel will attack again if Iraq tries to rebuild the facility.

The French government has expressed the hope that a long-term presence and monitoring by French scientists would help assuage Israeli fears. In addition, the sources explained, participation in the reactor's operation by other Arab countries could help diffuse Israel's intense distrust of Iraqi President Saddam Hussein's Baathist government.

Crown Prince Fahd of Saudi Arabia already has promised to finance reconstruction of the reactor and there have been reports of proposals for French nuclear cooperation with other Persian Gulf countries.

The Iraqi reaction to the French suggestion so far has been chilly, the sources said. At the same time, negotiations have not advanced to the stage where a final answer is required, they said, and secret contacts are continuing.

First Deputy Prime Minister Taha Yassin Ramadan, a member of Hussein's Revolutionary Command Council, declined comment in a recent interview on whether Iraq would accept such participation by other Arab countries, but he suggested that Iraq does not like the idea.

At the same time, Ramadan seemed to indicate that Iraq is considering another French proposal that could help alleviate Israeli fears. The proposal is that the new reactor be fueled with "caramel," a low-grade uranium fuel that is not enriched to the level required for making nuclear weapons.

Cheysson strongly hinted in January in a response to a question from the French Senate that the Mitterrand government will insist on caramel as the fuel for a new facility. The previous reactor used uranium enriched at more than 90 percent, enough to produce nuclear weapons if diverted from the research reactor.

Asked whether Iraq will accept caramel fuel, Ramadan dismissed the subject as "technical" and therefore out of his purview, but added, "this is not an important thing with respect to our goals."

His comment was in line with official Iraqi insistence that the reactor is being built strictly for peaceful research purposes. The ideology of Saddam Hussein's Arab Baath Socialist Party strongly emphasizes such efforts to modernize the Arab world--indeed, "baath" means "renaissance."

Hussein's government rejected French attempts several years ago to switch caramel for the highly enriched fuel agreed on in the original contract between Paris and Baghdad. At the time the contract was signed, French scientists had not yet developed the caramel fuel.

French delegations occasionally visit Baghdad for continuing negotiations on implementation of President Francois Mitterrand's pledge to rebuild the reactor, the sources said. But, they added, with Iraq embroiled in a long war with Iran, the talks have no urgency and questions such as the use of caramel fuel have not yet reached a critical stage.

In the meantime, a small crew of French technicians remains on hand but no work is under way to restore the facility, the sources said. The original contract was annulled after Israel's bombing raid.

Iraqi construction teams, however, have continued building a giant earthen wall around the destroyed facility, which is a 25-minute drive southeast of Baghdad just off the main road leading to Al Kut. The wall, dozens of yards thick, stands four or five stories high, an imposing monument in the otherwise flat farmland.

Surrounding the faciltiy are bright orange barrage balloons, shaped like blimps and tethered on cables hundreds of feet in the sky over dump trucks and scoop shovels working full-time to build the wall.

The balloons, similar to those used in World War Two, are designed to prevent low-level air attack. But foreign diplomats here express puzzlement about the purpose of the balloons or the wall, since the reactor already lies in ruins.