While diplomats and politicians continue to talk about the West Bank, Erez Altschuler is doing business there. It is a good business, and Altschuler is confident that it can only get better.

Altschuler, the general manager of a firm called Amcon, builds American-style homes all over Israel with materials supplied by Boise Cascade. Last year Amcon joined the rush to build homes for Israelis in the occupied West Bank. The firm is nearing completion of its first 12 homes in the territory, and Altschuler hopes to sell another 50 during the next six months.

Since last week, Amcon and 22 other companies that are in the business of building housing in the West Bank or financing their purchase have been showing off their wares in this suburb of Tel Aviv.

Thousands of Israelis have streamed through an exhibition hall, collecting colorful brochures from the building firms, studying the floor plans of various housing units that adorn the exhibition booths, talking to salesmen about prices and mortgage terms that are heavily subsidized by the government. Except for the religious clothing of the many orthodox Jews in the crowd and the staccato din of the conversations in Hebrew, it could be an exhibit sponsored by the local homebuilders' association in any American city.

But this exhibit, sponsored by the Israeli government, was taking place while about 100 miles away, in Amman, King Hussein of Jordan and Palestine Liberation Organization Chairman Yasser Arafat were holding their discussions on President Reagan's Middle East peace initiative, which calls for the West Bank to be linked in the future to Jordan.

The conversations in Amman and at the exhibition booths here concerned the same small slice of territory along the West Bank of the Jordan River.

Indeed, some of the very rocks and dirt that Arafat covets as the foundation upon which to build a Palestinian state were on display in the lobby of the Israeli construction center. The material was trucked from the West Bank and Jordan valley and decorated with colorful flowers and signs bearing the names of more than 100 Jewish settlements in the territory.

The Reagan plan and other proposals to settle the West Bank dispute seem distant and irrelevant inside the exhibition hall.

"I don't think people believe they will have to give back Samaria the biblical name of the northern region of the West Bank where Amcon is building so they don't worry," said Altschuler of prospective buyers.

Nor, Altschuler said, does he worry about the political implications of building in the West Bank.

"I am a Zionist in my political views," he said. "I think we are here in Samaria in places that belong to us. If the Palestinians want land, the East Bank Hussein's Jordan is land. . . ."

According to Eric Henig, a public relations man hired by the Israeli Housing Ministry to help arrange the exhibit, more than 50,000 people have passed through since the show opened last week. The exhibit, which closes Thursday, is the first of its kind in Israel devoted exclusively to the West Bank.

Many in the crowds that have visited the center are orthodox Jews, drawn to the West Bank not only by the cheap housing made possible by generous government subsidies but by the attraction of living in the biblical land of Israel. According to Altschuler, while orthodox Jews make up about 20 percent of Israel's population, they account for half of the West Bank home and apartment buyers.

Altschuler said most of the home and apartment buyers in the West Bank range in age between 25 and 40. They have children and are often planning to have more, he said. They are not a particularly wealthy group, he said, which makes the government subsidies all the more attractive.

Not everyone in Israel shares their enthusiasm for life in the territory, which was captured from Jordan in the 1967 war. When the housing exhibition opened last week, the Peace Now movement held a vigil outside and engaged in several sharp arguments with visitors.

Some visitors, like Donald Malament, a dentist from New York who has lived in Israel for eight years and has dual Israeli-American citizenship, came to find out just what the government is up to.

"I'm horror-struck," Malament said as he gawked at the government's official map of the settlements on display at the Amcon booth. "There is no place where they aren't building. They are creating a situation they will never untangle."