The Reagan administration plans to recommend that military aid to Israel be increased from $1.4 billion to between $1.7 billion and $1.9 billion next year but has not decided whether to grant Israel's request for a substantial jump in economic assistance, diplomatic sources said yesterday.

The sources said two days of talks here with an Israeli delegation ended with tentative agreement that the administration will seek a $300 million to $500 million increase in security assistance for Israel in its fiscal 1986 foreign-aid request. The entire amount will be in grants that do not have to be repaid.

Israel had sought a fiscal 1986 package of $2.1 billion in military assistance and $1.9 billion in economic aid. It also sought $800 million in emergency economic assistance for fiscal 1985 to help combat its economic crisis.

U.S. aid to Israel for fiscal 1985 is set at $2.6 billion, the highest amount for any country. That includes the $1.4 billion military figure and $1.2 billion in economic aid.

According to the sources, the United States, though agreeing that some increases are necessary, has argued that it cannot meet the full request while President Reagan seeks to cut domestic spending to reduce the federal deficit.

The sources said the administration also stressed that, before it agreed to increased economic aid, it wanted to see more progress on Israel's economic-reform program. For now, the sources added, the administration is unwilling to commit to more than a renewal of the $1.2 billion in economic assistance.

State Department spokesman John Hughes hinted at that yesterday, saying, "As far as economic assistance is concerned, we'll ask the Congress to maintain a significant level of regular annual assistance as in the past."

Referring to the $800 million in supplemental aid Israel seeks, he said: "The United States is going to defer a decision on this, pending the adoption of an effective Israeli economic stabilization program and a determination of the utility of such additional U.S. assistance supporting such a program. So we will wait a little and see how that plays out."