The Israeli Cabinet today dropped its demand that negotiations with Lebanon take place in Jerusalem and approved what was described as a "document" outlining a blueprint for normal relations between Israel and Lebanon and the withdrawal of Israeli troops from its northern neighbor's territory.

In announcing the government's decision, Dan Meridor, the Cabinet secretary, said direct Israeli-Lebanese negotiations based on the understanding could begin "in a matter of days."

Meridor said the document, whose existence was described last week by Defense Minister Ariel Sharon as a "breakthrough" in the Lebanese stalemate, should lead to talks covering "all elements" of Israeli-Lebanese relations, including a troop withdrawal, "security arrangements" for Israel in southern Lebanon and political ties between the two countries.

Later today, U.S. envoy Philip C. Habib met with Prime Minister Menachem Begin and received a report on the Israeli-Lebanese understanding. It was not clear after the meeting how much progress Habib has made toward a broader agreement in Lebanon involving the withdrawal of all foreign forces -- Israeli, Syrian and Palestinian.

Habib is scheduled to fly to Washington Monday while his colleague, envoy Morris Draper, returns to Beirut.

The origins and content of the understanding, said to have been reached during two months of secret negotiations, remained murky. Israeli officials refused to say whether the document was signed or initialed, suggesting it was not.

They also refused to say who represented the Lebanese in the talks with Sharon and others but strongly indicated they were Lebanese Christian elements acting with the knowledge and at least tacit consent of President Amin Gemayel.

Newsweek reports in its Dec. 27 issue that Sharon had negotiated the accord in such secrecy that not even high-ranking officials of Israel's Foreign Ministry were informed of the clandestine negotiating sessions. According to Newsweek, the agreement commits Gemayel to ending the state of war with Israel and to establishment of a 28-mile security zone in southern Lebanon.

Newsweek said Sharon negotiated the document with "Beirut's new intelligence chief," whom Newsweek did not identify, and two other emissaries representing Gemayel. The group met over a period of weeks at a rendezvous near Tel Aviv, Newsweek said.

Lebanese Foreign Minister Elie Salem denied Friday that discussions had taken place between Sharon and Lebanese government representatives, reinforcing the belief that Sharon talked with Christian representatives

Briefing reporters following today's Cabinet meeting, a senior Israeli official said the understanding reached so far forms "a very solid foundation for negotiations, with an agenda, what is agreed to and what is not agreed to." He cautioned, however, that the actual negotiations based on the understanding "will not be easy," that points in the document "need elaboration" and that "we will have arguments."

The official said "everybody made concessions" in arriving at a proposed "package deal" that covers security arrangements, normalization of relations short of a formal peace treaty and the withdrawal of Israeli forces from Lebanon.

The Voice of Israel radio reported that elements in the understanding call for an Israeli liaison office in Beirut, an open border with a free flow of trade, and a mutual pledge to refrain from hostile propaganda and economic and other types of boycotts.

The actual document is reportedly only three pages long and largely sets out the topics to be discussed in future negotiations. According to Israeli television, items to be discussed under "security arrangements" include establishment of Israeli early-warning stations in Lebanon, Israeli overflight rights in Lebanese air space and the status of the Israeli-supported militia in southern Lebanon commanded by Maj. Saad Haddad.

Meridor said Israel will appoint its representatives for the talks with the Lebanese shortly. He said sites for the negotiations will be decided by the two sides and could be within Israel and Lebanon or elsewhere, including Europe.

Amid the optimistic projections by Israeli officials, at least two potential obstacles remained. The first is that any Israeli-Lebanese agreement involving an Israeli troop withdrawal hinges on the willingness of the Syrian and Palestinian forces also to leave the country, a task the Israelis say they are counting on Habib to accomplish.

Israel continues to demand that the Palestinians leave Lebanon first, with this to be followed by a simultaneous Syrian and Israeli withdrawal.

The second factor is the acknowledged fragility of Gemayel's hold on his faction-ridden country. Particularly if the understanding was reached, as it appears, with Lebanese Christian negotiators outside the formal government structure, Gemayel may have difficulty getting representatives of Lebanon's Moslem majority to go along with the arrangement.

The Israeli Cabinet declared Nov. 28 that it would insist on direct negotiations with the Lebanese in Beirut and Jerusalem before agreeing to withdraw its troops. Demanding Jerusalem as a site for the talks was regarded as an impossible condition for Lebanon to meet and led to criticism of the decision by the United States and suggestions that the Israelis were deliberately stalling.

The November decision on Jerusalem was made largely at Begin's insistence and was regarded in some quarters as a tactical device to pressure Lebanon into meeting Israel's other demands. Meridor said the Cabinet's decision to reverse itself today was the result of the progress in the secret discussions with the Lebanese.