JERUSALEM -- A bid by former defense minister Yitzhak Rabin to unseat Shimon Peres as leader of the Labor Party has opened a bitter debate over the future of the Israeli left and cast two of the country's most formidable and mutually antagonistic politicians into another fight for supremacy.

Rabin, gaunt and gruff at 68, argues that he alone has a chance to stop the new right-wing government recently formed by Prime Minister Yitzhak Shamir. Riding a wave of popularity after five years at the head of the armed forces, the former general contends that if he took command of Labor he could break up Shamir's slim parliamentary majority, forcing elections in which he would be the favorite.

So far, however, Rabin's month-old campaign has merely renewed his bitter 15-year-old rivalry with Peres, who at 66 remains tenaciously committed to his own leadership ambitions. Although many of Labor's leading figures have switched to Rabin's side, Peres has refused to resign and has taken up an intricate procedural defense within the party's various administrative bodies.

The result is that Labor, now Israel's chief opposition party, is likely to spend the next several months playing out a repeat of the same two-man struggle that has haunted it since the retirement of former prime minister Golda Meir in 1974. While it is possible that the battle will, as Rabin hopes, precipitate early general elections, some Labor Party activists worry that it will merely weaken an already declining left and allow Shamir's new coalition to consolidate its hold on the country.

For now, too, the contest seems unlikely to produce the results that some critics say Labor may need most: the transition to a new generation of political leaders and the reformulation of the party's approach to the Israeli-Palestinian conflict.

"The Labor Party will be the principal loser," predicted political reporter Dan Margalit of the daily newspaper Haaretz, which as the standard bearer of the liberal political establishment has followed the conflict with meticulous, anxious attention. "If the good of the party were taken into account, Peres and Rabin would free it from the onus of their presence."

The continuing dominance of Peres and Rabin over Labor reflects a general state of political inertia in Israel, a stasis of leadership that some observers see as a key element in the country's reluctance to come to terms with such challenges as negotiations with Palestinians in the occupied territories. Like Labor, the ruling right-wing Likud Party is now dominated by two personalities, Shamir, 74, and Housing Minister Ariel Sharon, 62, whose public careers stretch back decades.

Under Shamir's tutelage, Likud has developed a younger generation of articulate and attractive politicians who stand ready to take over the party in the 1990s. But most observers see no such heirs in Labor, which has a few young leaders in their late thirties or forties but none who now appears ready to replace Peres and Rabin.

Two middle-aged figures from the ranks of the party, legislators Gad Yaacobi and Moshe Shahal, announced recently that they would also be candidates for the Labor leadership if the contest were postponed long enough for them to organize campaigns. However, neither is presently considered capable of winning the top post, and some party activists suspect their late entrance into the competition may be a ploy to assist Peres in delaying a decision.

Another prospective candidate for leadership, legislator Uzi Bar Am, said he felt he had to defer to Rabin because "he is the only one who can face Shamir and the Likud."

"The Labor Party now has problems with parts of the Israeli electorate," Bar Am said, referring to the party's four successive failures in elections since 1977. "It needs a candidate whose appeal is broader than that of the party. Rabin is the one who has that appeal."

Rabin, who was Israel's military chief of staff during the 1967 war, was generally not well regarded when he served as prime minister from 1974 to 1977. He lost his role to Peres as party leader because of a scandal involving a financial impropriety. In the last several years, however, he regained prestige as defense minister, a post that allowed him to project an aura of hawkishness while sticking to Labor's relatively conciliatory approach to Middle East peace efforts.

As Bar Am sees it, Rabin's image corresponds almost exactly to the feelings of most Israelis, who tend to soften on peace issues but are rock-hard on questions of security. Unlike Shamir, Rabin is open to the idea of negotiations with Palestinians who have the indirect backing of the Palestine Liberation Organization, and he is willing to accept Israeli withdrawal from parts of the occupied territories as part of a peace settlement.

At the same time, Rabin as defense minister presided over the tough Israeli reponse to the Palestinian uprising in the occupied territories, defiantly vowing to break the bones of demonstrators and bucking international pressure in imposing such punishments as house demolition and forced deportation. The mix of this domestic toughness and diplomatic flexibility has made him a favorite of both Israeli public opinion polls and U.S. diplomats, who see Rabin as a potentially key player in setting up Israeli-Palestinian negotiations.

Rabin contends that he has the potential to lead Israel back into the peace process, pushing forward the plan for elections in the occupied territories that he helped author.

"Our first obligation as an opposition is not to wait 2 1/2 years to present an alternative to the present right-wing government," he said in an interview, referring to the next scheduled parliamentary elections in 1992. "I believe we can bring about an election in the short term that will allow us to advance the peace initiative together with Egypt and the United States."

At the moment, the chief obstacle to this scenario is Peres, who despite blundering in his recent attempt to form a left-wing government retains a base of support in the Labor Party as well as his considerable talent for outmaneuvering opponents. While Rabin hoped to force a quick showdown, Peres has already managed to bog his challenger down in hearings before various party legal committees and administrative bodies, and is trying to postpone any leadership contest until 1992.

The party central committee is due to meet July 22 to decide if Rabin will be allowed to formally challenge Peres, and if so, when. Even if Rabin is supported by a majority of the committee, most observers predict several more months of bitter infighting will pass before the leadership contest is decided.

Haaretz writer Margalit, like many liberal observers, argues that what Labor really needs is a renewal of its policy to embrace the new realities of the Israeli-Palestinian conflict. Peres, he argues, should embrace the idea of negotiations between Israel and the PLO, creating a real alternative to Shamir and the Likud and anticipating the likely drift of events in the coming years.

Instead, he noted, "Rabin promises to overcome the Likud by imitating it. Peres ridicules this approach but has adopted it as well in the internal struggle." In the end, he predicted, "everyone will lose: the two of them, their supporters and the party."