With the traditional Jewish welcoming gifts of bread and salt, the people of this northern Israeli town greeted a delegation of their Lebanese neighbors from across the border today for the second meeting in the negotiations that they said they hope will lead to real peace between their countries.

Flags lined the streets, school children sang a song of welcome and townspeople held signs proclaiming their devotion to peace. Israeli officials recalled that the town had been attacked in the past by Palestinian guerrillas based in southern Lebanon.

Following the welcome, the three delegations--Lebanese, Israeli and American--resumed what are expected to be protracted talks over an Israeli troop withdrawal from Lebanon and Israel's demand that Lebanon in return agree to establishment of normal relations and creation of a "security zone" in the southern part of its territory.

After about 3 1/2 hours of private discussions the negotiations recessed, with differences still remaining over the scope and the order of the agenda for the talks.

Avi Pazner, the chief spokesman for the Israeli Foreign Ministry, said the meeting was "friendly and cordial." He issued a statement for the three delegations saying:

"Negotiations between Israel and Lebanon with the participation of the United States continued today with the review of the positions of Lebanon and Israel. We continued our discussions about setting up an agenda for the talks. Further progress was made. Some differences were resolved and others were narrowed."

Pazner said the talks would resume Monday in Khaldah, Lebanon, a Beirut suburb where they formally began on Tuesday.

The dispute over the agenda at the outset of the negotiations centers on the Israeli demand for normal relations, including an open border and the free flow of trade and tourism. The Lebanese, fearful of the reaction in the Arab world should they agree to a formal accord with Israel, are seeking to eliminate or narrow that topic and make an Israeli troop withdrawal the first order of business.

According to accounts in the Israeli press today, Israel is willing to soften its position on the wording of the agenda items but not to back down on the substance of its demand for normal relations.

For weeks Israel insisted that the negotiations take place in Jerusalem, and only when it dropped that demand two weeks ago was the way cleared for the talks to begin. The Israelis nonetheless seemed pleased by the presence of the Lebanese diplomats at this alternative site--chosen as symbolic of the Israeli justification for invading Lebanon last June 6.

"Our convening here of all places in Qiryat Shemona is not accidental," said David Kimche, director general of the Israeli Foreign Ministry and chairman of the Israeli negotiating team, in welcoming the Lebanese and Americans.

"This town and its brave inhabitants have symbolized for us the threat which the terrorist presence in Lebanon has presented to us. Terrorist infiltrators with the aim of killing civilians came to this town.

"And more so, the repeated artillery shelling and bombing by Katyushas brought home to our entire population the necessity to remove this constant threat to our civilians once and for all. Hence, Qiryat Shemona has become a symbol for all of us, a symbol of bravery in the face of terrorist attacks and wanton bombing."

Then Kimche called the meeting to order at a round table "to talk peace, in order to reach normal relations between our countries and peoples and in order to work out arrangements that will ensure us that Katyusha bombs will never again fall on Qiryat Shemona."

The Soviet-made Katyusha rocket was used by the Palestine Liberation Organization forces in southern Lebanon before the Israeli invasion. The rocket's name was heard frequently today in this town of 15,000. In the room used by the press in the Edelstein library and community center building, site of the negotiations, a handwritten orange sign, pointing to a dark spot high on the wall, said: "Spot where the Katyusha hit, July, 30, 1981."

According to Marsha Brown, a worker at the community center who moved here five years ago from New York, in the last 15 years the longest sustained period without a rocket attack or some other incident in Qiryat Shemona was the 10 months immediately after the 1978 Israeli invasion of Lebanon that drove the PLO forces north of the Litani River.

"But they just built bigger and better Katyushas" that could still reach northern Israel, Brown said.

The worst part, she said, was the uncertainty and psychic strain. Children began to associate certain holidays with rocket attacks. Parents were reluctant to go out at night and leave their children, fearful they could not get home in time if there were an attack.

While the residents of Qiryat Shemona were unscathed for many months prior to the invasion last June, they said the PLO was still within range and claimed that a handful of rockets fell harmlessly on the town last April or in early May. The alleged incident apparently was neither reported in the news media at the time nor was cited by Israel to refute assertions that there had been no PLO attacks inside Israel for the 11 months prior to the invasion during a U.S.-mediated cease-fire.

"For the first time people are breathing freely," said Efraim Kritzler, a member of the town council. "In that sense this town was one of the big beneficiaries of Peace for Galilee," he said, using the Israeli government's name for the invasion of Lebanon.

Qiryat Shemona is a center of bedrock support for Prime Minister Menachem Begin. In the fall, when Shimon Peres, leader of the opposition Labor Party, appeared in the same building in which today's negotiations were held, he was shouted down by hecklers. There were no hecklers today.

The Lebanese delegation, headed by Antoine Fattal, and the U.S. group, led by Morris Draper, were greeted at the community center by Reuven Robert, Qiryat Shemona's appointed mayor.

Robert said he hoped that Qiryat Shemona, so long a symbol to Israel of "a town under fire," would become "a symbol of the new peace."

Fattal replied, "I am a Christian. Jews and Moslems are my brothers and the God of Abraham is our common God. We all aspire to peace."