When Time Inc. attempted a few weeks ago to subpoena two high-ranking Israeli officials who were studying in the United States this fall, the Israeli Embassy in Washington quickly added their names to the embassy's diplomatic list, effectively granting them immunity from testifying.

Time representatives in Israel, seeking evidence to defend against Israeli Cabinet minister Ariel Sharon's $50 million libel suit, provided authorities there with a list of prospective witnesses. Israeli officials promptly sent those persons letters warning that they could face prosecution if they provided Time information.

Time has accused the Israeli government of acting in collusion with Sharon to block access to witnesses and classified documents critical to its defense.

Israeli justice ministry officials, saying the state of Israel is in no way a party to the litigation, generally have cited Israeli security and foreign policy considerations in denying Time direct access to evidence it has sought.

Time's ongoing skirmishes with the Israeli government constitute something of a second front in the legal battle going on here. Time lawyers have made personal appeals to Israeli Cabinet ministers and sued unsuccessfully in the Israeli Supreme Court to get information.

Independent of those efforts, the federal judge in the libel trial, Abraham D. Sofaer, has carried on -- through diplomatic channels -- a long correspondence about the matter with Israeli officials since August.

Today, Sofaer released those letters to reporters, including one from the Israelis setting forth the terms of a compromise proposed Friday by the Israeli Cabinet.

Time's lawyers today were studying the Cabinet's proposal to allow former Israeli Supreme Court justice Yitzhak Kahan to reexamine certain classified documents at issue in the libel case and reply in writing to the court here.

Time's attorneys appeared likely to agree to the arrangement, but it seemed equally likely that the transcontinental wrangling will continue.

Before the libel trial began last month, Sofaer rejected Time's contention that Sharon and the Israeli government had been acting in concert, although, in another context, he remarked on "the widely known influence wielded by Sharon as a member of the delicately fabricated coalition that governs that extravagantly democratic nation."

But the judge accepted Israeli Cabinet members' statements that they were not involved in the libel suit -- apparently attaching little significance to the fact that Sharon's personal expenses during the trial are being underwritten by his government, that he was given special permission by the Cabinet to raise funds in the United States to help defray his legal costs and that he has boasted that he is waging a legal battle not for himself but on behalf of the state of Israel and all Jews.

In Washington, U.S. District Court Judge Gerhard A. Gesell had a different view, expressing irritation at the Israeli government for conferring diplomatic status on Maj. Gen. Amir Drori after Time attempted to subpoena him.

Drori is currently a senior fellow at the Heritage Foundation in Washington and on leave from his military duties.

Reluctantly quashing the subpoena because of Drori's newfound diplomatic immunity, Gesell said Israel was "quasi-officially" responsible for Sharon's lawsuit and could stop it "in 30 seconds if it wanted to."

The other Israeli official granted diplomatic immunity is the deputy director of Mossad, Israel's foreign intelligence agency, who was in this country attending a Harvard seminar for executives. He was put on Israel's diplomatic list shortly after receiving a call from one of Time's lawyers and before a subpoena could be served.

In the trial here, Sofaer has allowed Sharon and other witnesses broad discretion in invoking national security as a reason for not answering questions.

Time hired an Israeli law firm headed by a former minister of justice who rendered an opinion that Israel's secrecy law is being too broadly interpreted, but the judge said he would rely on statements by officials now in the justice ministry.

Time also has accused Sharon of being "selective" in deciding what confidential information he will disclose.

For example, Sharon has had access to most of the documents Time is seeking, but he will not say what they contain, asserting only that they dispute the accuracy of the February 1983 Time article at issue.

Sharon has permitted his lawyers here to examine some confidential information but has denied equal access to Time, saying in a deposition that "facing that libel that I was facing, I had to equip my lawyers with the minimum which they needed."

Asked what guidance he got from his government about confidentiality, Sharon said that as an Israeli minister and former military officer in a career spanning 38 years, he is capable of exercising judgment about Israel's security interests.