The Israeli government's efforts to deport Palestinians convicted of terrorist activity have suffered setbacks in both the civilian and military judicial systems.

Last night, a military review board recommended dropping deportation proceedings against a Palestinian convicted of major security offenses. Last Thursday the High Court of Justice delayed the deportation of 12 convicted terrorists, granting a temporary injunction and ordering that the military government show why they should not be allowed to remain in the occupied territories.

The military review board, in a rare move, urged that the Army's Central Command reconsider its decision to deport Khalil Abu Ziad, who security authorities allege is a West Bank commander of Fatah, the largest faction in the Palestine Liberation Organization. The board ruled that while the evidence linked Abu Ziad with Fatah, it found nothing to connect him directly with specific terrorist acts in the past three years, during which he has been under house arrest.

The Army said tonight that it will reject the board's recommendation and oppose Abu Ziad's appeal in the civil courts, a decision that could result in an appeal to the Supreme Court and a ruling on the broader question of whether the deportations violate the prisoner exchange agreement last May and the Fourth Protocol of the Geneva Conventions, which prohibits forcible deportations from occupied territories.

Israel has agreed to abide by the humanitarian provisions of the Geneva Conventions, but rejects the deportation clause.

Abu Ziad, who was released from prison in 1980 after serving 10 years for subversive activities, denied that he was a Fatah leader and said he advocates a Palestinian state in the West Bank and Gaza Strip with mutual recognition and peace between it and Israel.

A senior Army officer said today that evidence had been presented to the military review board linking Abu Ziad to specific terrorist actions, and that he could not understand why the board recommended against deportation.

Army officials said Abu Ziad was trained abroad by Fatah and continued even during his house arrest to maintain contact with Khalil Wazir, PLO Chairman Yasser Arafat's military commander.

His lawyer, Lea Tsemel, said today that when Israel negotiated the prisoner exchange, Arab prisoners were assured that they could choose where they wished to live and that "everything in the past would be forgotten."

Appeals by Abu Ziad and the other 12 are to be heard by the High Court on Thursday.

The 12, who were among 1,150 prisoners released by Israel in May in exchange for three Israeli soldiers, argued that the Israeli claim that they do not have required residency permits and should be deported violates the exchange agreement.

Israeli officials contend that the 12 are among 31 freed prisoners who did not possess residency permits when they were arrested and that they were told immediately after the exchange agreement that they would not be permitted to remain.

Israeli officials said most of the 31 infiltrated from Jordan during or after the 1967 war but cannot go back there because Jordan will not accept Palestinians deported from Israel. Officials said other countries also have refused to accept them.