Israel and Egypt moved closer today to an agreement on a disputed beachfront tract at Taba on their border in the Sinai Peninsula, raising hopes for early resumption of normal relations between the two countries, senior Israeli sources said.

A compromise agreement on concurrent conciliation and arbitration of the territorial dispute could be hammered out before the end of negotiations now being held in Herzliya, a Mediterranean resort town, and scheduled to end Wednesday, informed Israeli government sources said.

The head of the Israeli delegation, Avraham Tamir, director general of the prime minister's office, was more guarded in his assessment, but he said, "If you ask me whether I'm optimistic, I'm optimistic."

Resolving the dispute over the 700-yard-long Gulf of Aqaba coastal strip is regarded by Prime Minister Shimon Peres as crucial to restoring full relations between Israel and Egypt and paving the way for his meeting with Egyptian President Hosni Mubarak. He also sees it as essential before Mubarak actively joins the stalled effort to initiate peace talks between Israel and a Jordanian-Palestinian delegation.

Egypt withdrew its ambassador in Tel Aviv following the 1982 massacre at Beirut's Sabra and Shatila Palestinian refugee camps and it suspended the Taba talks in reaction to the Oct. 1 Israeli air strike against the Palestine Liberation Organization headquarters in Tunisia.

Mubarak, in an interview published in The Washington Post on Monday, said he would reinstate the Egyptian ambassador to Israel and meet with Peres when the Taba issue is resolved.

Israeli officials said a significant breakthrough in the current talks came when Egypt agreed to provide a full report on the killing of seven Israeli tourists by an apparently beserk Egyptian policeman in October in Ras Burka, a Sinai resort.

Tamir said today that future security arrangements for Israelis traveling in the Sinai will be dealt with by the Joint Israeli-Egyptian Commission formed under the 1979 Camp David peace accords. Israel's ambassador to Cairo, Moshe Sasson, who is also participating in the Herzliya talks said that Egypt was expected to turn over the Ras Burka report "as soon as possible."

The Israeli and Egyptian delegations completed three days of preliminary talks in Cairo on Wednesday, during which Israel for the first time agreed to discuss the terms of international arbitration for dealing with the Taba dispute.

Until then, Israel, at the insistence of Foreign Minister Yitzhak Shamir, had demanded that the two countries first attempt to reach a solution through conciliation, moving to arbitration only if conciliation failed. Shamir argued that if arbitration favored Israel, it would create tension between the two countries that would further stall a resumption of full relations.

Mubarak insisted that the dispute go to arbitration immediately because repeated contacts between the two countries already had failed to produce an agreement.

Israel kept control of Taba after it withdrew from the rest of the Sinai Peninsula in 1982 even though the Egyptians contended that it should have been returned with the rest of the territory captured by Israel in the 1967 war. Later, an Israeli-owned five-star hotel was completed on the pie-shaped parcel of disputed land.

The Egyptian and Israeli delegates also were said to be close to agreement on the size of an international arbitration panel, including an Israeli and an Egyptian, and the length of the procedure.

The current round of talks is scheduled to end Wednesday, but Israeli officials said it could be extended a day. They said Shamir has scheduled a Wednesday night meeting with the head of the Egyptian delegation, Assistant Foreign Minister Abdel Khalim Badawi.