After drifting for years with largely reactive and stopgap policies in the occupied West Bank and Gaza Strip, the Israeli government of Prime Minister Menachem Begin now believes it has developed the first cohesive and long-range plan for coping with militant Palestinian nationalim.

Its goal, the architects of the plan say, is to uproot from the occupied territories the pro-Palestine Liberation Organization leadership that was popularly elected in 1976, and create a new political atmosphere in which moderate, or even ambivalent, Palestinian voices can be heard.

At worst, those voices will simply maintain peace and order, the plan's proponents say. At best, they will actively participate in the autonomy scheme envisaged in the Camp David accords.

Although the first move to execute the plan was made March 16, two days before the government fired El Bireh Mayor Ibrahim Tawil, it had evolved through a coincidence of views exchanged by Begin, Defense Minister Ariel Sharon and Menachem Milson, the civil administrator of the territories. It initially was set in motion following a Cabinet vote last Oct. 4 to restructure the occupation government.

The firing of Tawil, after he refused a summons to Milson's office, was followed by a chain reaction including the dismissals of Nablus Mayor Bassam Shakaa and Ramallah Mayor Karim Khalaf, widespread rioting, and the deaths of eight West Bank Arabs and two Israelis.

Deep-seated resentment of Israeli occupation by 1.3 million Arab inhabitants no doubt remains. But, as Sharon noted after the dust had settled, it is "peaceful" now in the West Bank, and he maintained that it is likely to stay that way if the government does not flinch from its new policy.

The lesson of last month's angry days of rioting is not so much that the Israeli Army has the capacity to exert its will in the West Bank--which was known anyway--but that a new order for limited self-government by Arabs and new rules for political expression have begun to be established in the occupied territories.

With three of the most widely respected and influential Arab mayors under virtual house arrest and bereft of any political forum from which to espouse their radical nationalism, the few remaining openly nationalistic mayors are on notice that they will court the same fate if they fail to moderate their public stances and distance themselves from the PLO.

Two years ago, when Milson was a professor of Arabic literature at the Hebrew University, he began approaching foreign correspondents with a paper he had written that seriously called into question the policies developed by the late Moshe Dayan. Milson said the policies had, partly through design and partly through inertia, guided Israeli policy in the occupied territories ever since Israel captured the West Bank in the 1967 War.

A year later, in the May 1981 issue of Commentary magazine, Milson published his carrot-and-stick theories, warning that decisions by various Israeli governments to foster a policy of liberalism toward political expression in the West Bank had only encouraged a rise of radicalism that posed a serious danger to Israel's security.

The answer to this threat, Milson said, was to prepare new social and political conditions in the territories by rewarding the "moderates" with moral and financial support and inhibiting the free-wheeling political activities of West Bank leaders who openly support the PLO.

Years before his theories were published in the Commentary article, drawing wide attention in Israel and the West Bank, Milson had begun to express, albeit quietly and within his own circles, his fears that the PLO, with the unwitting help of Israeli policy, had managed to co-opt the representation of the Palestinian people in the occupied territories through a handful of big-city mayors.

As a lieutenant colonel in the occupation government, serving as Arab affairs adviser to the military governor, Milson apparently had been impressed with the often overlooked demographic fact that more than than 60 percent of the West Bank's 800,000 Arab inhabitants come from rural areas and are, generally, less politically oriented and more ambivalent toward the PLO than city residents.

Although he denies being the "inventor" of the concept, it was then that Milson began to encourage the formation of the village leagues, which potentially represented a political alternative to rival the dominance of the pro-PLO mayors of the larger towns.

The first village league, quietly founded in the Hebron hills region two months after president Anwar Sadat's November 1977 visit to Jerusalem, has grown to include branches in Bethlehem, Ramallah, Nablus and several other towns. In Milson's vision, they will continue to grow as the Israeli government has further successes in containing the political influence of the big-city mayors.

While the plan to develop the political base of the village leagues and simultaneously dilute the influence of the pro-PLO mayors received little active support from former defense minister Ezer Weizman and seemed to be lost amid a series of crises when Begin held the defense portfolio himself, it got a new lease on life when Ariel Sharon was named defense minister after the Likud government was reelected last June 30.

Sharon, who, according to defense sources, read and was impressed by Milson's article in Commentary, decided last October to revamp the occupation government, separating the military and civil functions. He asked Milson to abandon his academic career and take the job of civil administrator.

Begin, according to government sources, was enthusiastic about the new approach. On Oct. 4, the Cabinet unanimously endorsed the scheme, and Milson was named administrator.

It was against this backdrop that the Ministerial Defense and Security Committee met on March 16 and weighed the implications of a threat by the Jordanian government to try village league members in absentia for treason, under the threat of property confiscation and even death.

Cabinet sources said that in the meeting, Sharon argued--and Begin concurred--that Israel had to move fast to establish a new "starting vine" for political expression in the West Bank, and that the only recourse was to get rid of the most outspoken pro-PLO mayors.

Subsequently, Milson summoned Tawil to appear at military government headquarters near Ramallah for a "working session," and Tawil, on the basis of a municipal council vote, decided to defy the summons.

The stage was then set for the most sweeping crackdown against militant Palestinian nationalism in the 15-year history of the occupation--and the West Bank's most violent week.

That violence prompted the opposition Labor Party to accuse Sharon and Milson of deliberately stirring up the Arabs to provide justification for perpetuating Israeli control over the occupied territories.

Two previous West Bank military governors, Benyamin Ben-Eliezer and Raphael Vardi, joined the chorus of criticism, saying that the firing of the mayors and the imposition of new occupation government will only radicalize Palestinians and push them toward the PLO.