UNITED NATIONS, JAN. 20 -- Secretary General Javier Perez de Cuellar will propose this week that the five permanent members of the Security Council initiate negotiations on the Arab-Israeli dispute, seeking common ground that would contribute to a long-term solution.

This proposal, said a ranking U.N. official, speaking authoritatively on the condition that he not be named, is the most viable of several in a report to the council on conditions among Palestinian residents of the West Bank and Gaza Strip. That report, prepared by U.N. Undersecretary Marrack Goulding who returned yesterday from a visit to the area, is to be issued Friday by the secretary general.

The report was requested by a council resolution Dec. 22 on the rioting.

It will be followed by a week-long debate in the Security Council, starting Monday, with the participation of a number of foreign ministers from Arab League countries, officials said.

The council debate will be the fifth on Israel since the current round of violence, in which at least 38 Palestinians have been killed, began last month. Diplomats said its impact would be limited because the United States has had second thoughts about the effectiveness of its support for earlier resolutions critical of Israeli actions, and is likely to veto any harsh condemnation.

The secretary general, however, is said to believe that the five major powers -- Britain, China, France, the Soviet Union and the United States -- could usefully convene a series of private meetings on the ambassadorial level to seek agreement on elements of a solution in the occupied territories and on other disputes between Israel and its neighbors.

The official said such a process would be more practical than any current attempt to convene a full-scale international conference on the Middle East and would be similar to the process followed over the past year on the Iran-Iraq war.

This process produced a unanimous council resolution last July demanding a cease-fire and other measures to end the war. Talks resumed among the five last month on the terms of a second resolution, which in the U.S. view should impose an arms embargo on Iran.

An Iranian reply to the latest proposal by Perez de Cuellar for compliance with the July resolution was circulated to council members yesterday, and was characterized by the secretary general as providing no concession significant enough to justify further delay in the imposition of an embargo, the official said.

He said the letter from Iranian Foreign Minister Ali Akbar Velayati continued to condition a cease-fire on the determination of guilt for the war, which began in 1980. The Iraqi reply has not yet been delivered, but Iraq earlier had accepted the resolution's terms.

On the basis of the Iranian reply, the official said, the secretary general feels there is no point in pursuing his negotating process at this time, and that the ball is in the court of the Security Council.