A long-established but obscure Israeli welfare benefit that effectively excludes the country's Arab citizens from government benefits to large families has come under legal challenge from two Arab members of the opposition Labor Alignment.

Members of parliament Mohammed Wattad, father of seven, and Hamad Halaili, father of 10, asked the Supreme Court yesterday to block enactment of a measure that would increase benefits to large families--who now get $250 a year for each child, beginning with the fourth--on the grounds that it discriminates against them.

The controversy has highlighted problems that the Israelis face in governing a country that is officially a Jewish state but contains a large Arab minority that would more than double if Israel ever annexed the occupied West Bank and Gaza Strip.

Under the increased payments plan, approved by the government of Prime Minister Menachem Begin, the increased benefits would go to families in which at least one member had served in the Israeli Army and, through a separate channel, to the families of orthodox yeshiva students whose life work consists of religious and biblical teaching and study.

The separate channel, through the Ministry of Religious Affairs, is necessary to funnel the money to yeshiva students with large families because they are exempt from military service and would not qualify under a veterans' benefits program.

This arrangement for the students, however, forms the basis for the Arabs' legal challenge. The only other broad category of Israelis who are exempt from military service, and thus would be the only ones barred from receiving the benefits, are the country's estimated 600,000 Arab citizens.

Tzaly Reshef, a lawyer who is representing Wattad and Halaili, said in an interview today that he would not mount a legal challenge to the system if it provided benefits only to the families of veterans.

"It would be very difficult to challenge in court a law that says someone who served for three years in the Army is entitled to benefits," he said. "But if I can show a whole set of arrangements that exclude only Arabs I think I have a case."

The parliament's finance committee has already approved the extra benefits for veterans, estimated to affect about 75,000 families. The court challenge seeks to prevent payment of $850,000 to the Religious Affairs Ministry to benefit several thousand orthodox families that do not qualify under the veterans' program.

The Arab families left out by this arrangement, estimated to number as many as 40,000, are those Palestinians who remained in Israel following establishment of the Jewish state in 1948 or who have been born here since. They are considered full-fledged Israeli citizens, entitled to vote and, in theory, to all the other benefits of citizenship. But they are exempted from military service and no effort is made to encourage them to volunteer.

Israeli Arabs have a higher birthrate than the country's Jewish majority and would reap proportionately greater benefits from an increase in government benefits to large families. According to the most recent government statistics, in 1980 more than 75 percent of Israel's non-Jewish households with children had four or more.

The comparable figure for Jewish households was just under 30 percent.

The family benefits system originated in the early 1970s under a Labor Party government. But it was not widely known--with the payments to yeshiva students apparently buried in the Religious Affairs Ministry budget--until this week when the Begin government moved to increase the benefit amounts as a result of political pressure.

Before adjourning its winter session this week, parliament approved the budget for the fiscal year that begins April 1. But to ensure passage of the budget, Begin had to make good on some of the promises he made to small political parties that were vital to him when he formed his government with a one-vote majority after the 1981 elections.

One of those parties, Tami, demanded implementation of the promised increase in payments to large families that would benefit its constituency of North African Jews. But when the measure to accomplish this through the veterans' program reached the finance committee, whose chairman is a member of the ultraorthodox Agudat Israel Party, another member of the government coalition, it was threatened with blockage unless the $850,000 was also provided to the Religious Affairs Ministry.

The Arab challenge appeared to be given a boost by reports in the Israeli press this week quoting Attorney General Yitzhak Zamir as saying it was illegal to provide payments to Jews who did not serve in the Army while excluding Arabs because they are not military veterans.

The attention that has been focused on the system also has drawn criticism from newspapers opposing Begin's government.

The Jerusalem Post said today in an editorial entitled "A National Embarrassment" that as a result of the "discriminatory" legislation, "the line was drawn not between soldiers and nonsoldiers but between Jews and Arabs."

The editorial also noted that the increased payments are to be financed in part by a new travel tax on Israelis who travel abroad and that the Begin government "has not been heard to suggest that Arab citizens should be exempted from the travel tax."