Maj. Saad Haddad, who broke from the Lebanese Army to command an Israeli-supported militia in southern Lebanon, died today of cancer at his home in the Lebanese town of Marjayoun. He was 47.

Haddad, a Greek Catholic, was for years Israel's closest ally in Lebanon, the master of a narrow strip of land along the Israeli-Lebanese border from which he waged fierce warfare against Palestinian guerrillas in southern Lebanon.

Last week, a Lebanese state court in Beirut, aware of Haddad's critical condition, reinstated him with full rights in the Lebanese Army. He had been expelled in 1979 after proclaiming his enclave along the Israeli border the independent "Republic of Free Lebanon."

The court's decision was one of the reasons Lebanese Druze leader Walid Jumblatt gave last week for blocking agreement on a disengagement plan offered by the government to end fighting around Beirut, Washington Post correspondent Herbert H. Denton reported from Beirut. Jumblatt, who is allied with Syria and the Palestinians, was a foe of Haddad's.

Tonight, senior Israeli officials paid tribute to their longtime ally. Prime Minister Yitzhak Shamir was quoted as calling Haddad "a great Lebanese patriot and true friend and ally of Israel."

"Lebanon today has lost one of its most gifted commanders and Israel has lost one of its best friends," Defense Minister Moshe Arens said in a statement issued by his office.

Israeli radio reported tonight that Israel and Lebanon had agreed to name Col. Elias Khalil, a Christian from a village near Sidon, to replace Haddad.

Israeli officials have been aware for weeks of Haddad's terminal illness and his death is not expected to have any immediate impact on Israeli policy in southern Lebanon. However, the loss of Haddad as the leader of an established, pro-Israeli militia in the area is among the factors complicating Israel's task of extricating its own Army from southern Lebanon and turning the territory over to the Lebanese Army or local militias.

Israeli officials have vowed to remain in southern Lebanon until adequate security arrangements are made for the territory. Israel has little confidence that the Lebanese Army will be able to extend its authority south of Beirut and has sought instead to cultivate local Shiite Moslem militias in southern Lebanon. The Israelis are hoping that the Shiite militias could combine with Haddad's forces in policing the area, thus allowing the Israeli Army to withdraw.

But Israeli officials acknowledge they have made little headway with this strategy, while the tension between the local southern Lebanese population and the occupying Israeli Army appears to be growing.

Haddad's militia has remained loyal to its Israeli sponsors and suppliers, but with an estimated 1,500 to 2,000 men, the force is far too small to police more than a portion of the territory occupied by the Israeli Army.

Haddad was a controversial figure, but he appeared to command the loyalty of his own men, a large number of whom are Shiite Moslems, and the minority Christians of southern Lebanon.

Haddad died at a time when the area that his militia roamed was near its peak but the force's military importance had been diluted by the Israeli Army presence.

After the 1982 massacre of Palestinian refugees in the Sabra and Shatila refugee camps of west Beirut, some survivors had accused Haddad's men of participating in the slaughter. But the Israeli commission that investigated the incident exonerated Haddad's militia of any role in the massacre.

Drafted into the Lebanese Army in the late 1950s, Haddad received training at the French military academy and the advanced infantry school at Fort Benning, Ga.

In 1968, while stationed in southern Lebanon, Haddad was wounded in a skirmish with Palestine Liberation Organization guerrillas and throughout his career he exhibited a deep hatred for the Palestinian fighters.

Haddad was the Lebanese Army commander in southern Lebanon during Lebanon's civil war in the mid-1970s. Following Israel's invasion of the south in 1978, he established control over a nine-mile strip of territory along the Israeli border, proclaiming it an independent enclave the next year to protest the Syrian presence in Lebanon.

The strip of land was a de facto extension of Israel. Haddad's men wear Israeli Army uniforms, carry Israeli weapons and are paid by Israel. In their enclave, Haddad and his men not only fought PLO guerrillas but fired frequently at the positions of the United Nations peace-keeping force that was established in southern Lebanon in 1978.

In October, Haddad was admitted to Rambam Hospital in Haifa, Israel, and was said to be suffering from exhaustion. Released after treatment, he was readmitted on Jan. 1.

On Jan. 5, the day after the Lebanese court officially readmitted him to his country's Army, Haddad was flown by Israeli helicopter to Marjayoun where, in the presence of his wife and six daughters, he died at 5:15 p.m. (10:15 a.m. EST) today.