Negotiations between the government of Israel and independent counsel Lawrence E. Walsh have broken down, and a federal judge will now decide whether Israeli citizens will be required to answer questions about their roles in the Iran-contra affair, according to sources familiar with the discussions.

The failure to reach an out-of-court solution largely stemmed from a disagreement between Israel and Walsh over whether his investigators would be allowed to directly question Israeli citizens -- including David Kimche, former director general of the Israeli foreign ministry, and Adolph (Al) Schwimmer, an Israeli arms dealer -- according to the sources.

Walsh is seeking to question Kimche, Schwimmer and at least two other Israelis -- Amiram Nir, an Israeli government counterterrorism adviser, and Yaacov Nimrodi, another Israeli arms dealer -- concerning their roles in the secret sale of U.S. arms to Iran.

In late May, after members of Walsh's staff made an unsuccessful trip to Israel, a federal grand jury investigating the Iran-contra affair subpoenaed Kimche, who played a key role in launching the secret sale of U.S. arms to Iran. Schwimmer, who holds dual Israeli-U.S. citizenship, was subpoenaed in June.

The Israeli government angrily protested the subpoenas and went to court to block Walsh's efforts.

Sources said that U.S. District Court Judge Aubrey E. Robinson, who as chief judge supervises the grand jury, has decided that Walsh must submit questions to the court and Robinson will determine whether Schwimmer and Kimche are required to answer them.

Israel has contended that Kimche, Schwimmer and other Israelis involved in the Iran-contra affair were acting as agents of the Israeli government and are covered by diplomatic immunity.

Reports in the Israeli press indicate that Israeli officials are pleased with Robinson's decision, largely because they believe their position has been vindicated.

It is unclear, however, what will happen if Robinson should decide that there are some questions that are not covered by diplomatic immunity.

Yossi Gal, spokesman for the Israeli Embassy here, said yesterday that Israel is "willing to cooperate with Mr. Walsh."

However, Gal said that the Israelis involved in the Iran arms deals "acted on behalf of the government of Israel {and} any questions should be directed to the government of Israel."

State Department officials have said that they agree with the Israeli position, but Walsh has not backed away from his efforts to gain access to the Israelis.

Gal said that Israel has offered to provide Walsh with written financial and historical chronologies about the Israeli role in the Iranian arms sales, but before they will be provided, Walsh must agree to Israeli conditions.

The Senate and House Iran-contra panels reached a separate agreement with Israel in which the committees received chronologies prepared by the Israeli government on the condition that Israeli citizens not be questioned.

Although Walsh has declined to comment, veteran prosecutors have said that written accounts are a poor substitute for face-to-face questioning in a criminal probe.

Walsh is believed to have told the Israelis that he is not seeking to indict any Israelis and is interested in questioning them in order to get the fullest account of what happened. Compromises that have been discussed include questioning the Israelis informally rather than before the grand jury and in the presence of Israeli government officials.

Walsh's staff can be expected to argue that there are questions the Israelis could answer that would not involve their official duties or Israel's national security issues. For example, the Israelis could be asked to relate what they overheard in conversations between Iranian officials and Lt. Col. Oliver L. North, the fired National Security Council aide and a central figure in Walsh's inquiry.

Kimche, who is no longer with the Israeli government, was subpoenaed while on a trip in New York. He was allowed to return to Israel after Robinson was assured that he would return should the judge rule in Walsh's favor.

Schwimmer was served in Israel because he is also a U.S. citizen. Sources in Israel have said that Walsh has also issued subpoenas for Nir and Nimrodi, but since they are Israeli citizens, they cannot be served unless they step foot in the United States.