JERUSALEM -- Five weeks after inaugurating a right-wing government labeled as the most extreme in Israel's history, Prime Minister Yitzhak Shamir is arguing that he has confounded critics who expected him to crack down on Palestinians in the occupied territories and plunge into conflict with the Bush administration.

The new cabinet that took office June 11, the first purely right-wing alliance to rule Israel since 1984, was called a "war government" by Arab leaders because of its dependence on small, extremist parties as well as hard-liners within Shamir's Likud Party. Nevertheless, officials here contend that the principal battle the new administration has launched has been a concerted effort to remake its militant image, especially in Washington.

Rather than cracking down, Shamir's defense minister, Moshe Arens, has steered Israeli forces away from conflict with Palestinians in the West Bank and Gaza Strip, released 400 security prisoners and carried out a round of meetings with local Arab leaders. The new foreign minister, David Levy, has softened his once-hard-line resistance to Israeli-Palestinian negotiations and hinted at an accommodation with Secretary of State James A. Baker III, who has been pushing for the talks.

Housing Minister Ariel Sharon, seen by Israel's left as the most-feared politician of the nationalist right, has devoted himself entirely to the country's mounting problems in accommodating Soviet immigrants, and has pledged publicly to guide them away from Jewish settlements in the occupied territories. In an appearance on Israel television last week, he declined to repeat his intransigent views on the peace process, saying he had no time for diplomatic affairs.

Leaders of the far-right parties included in the government have maintained a similarly conspicuous silence, refraining from criticism of any of the government's liberal gestures. "They said we would be a war government, and we still have not declared a single war," Shamir told the newspaper Haaretz a few days ago. "I know we have disappointed many people who expected much trouble from this government, trouble that fails to materialize."

Even the government's critics concede that it has at least temporarily succeeded in dispelling the extremist image. "More or less it's the same government we already had," said leftist parliamentary deputy Dedi Zucker, referring to Shamir's former "unity government" with the left-wing Labor Party. "There's been no breakthrough, either to the left or the right. Pragmatically, everyone prefers the status quo."

Zucker and other outside observers say the political equanimity is likely to last only as long as the new government is not tested on a major issue. Once Levy is pressed to define Israel's position on the peace process in an expected visit to Washington next month, or Arens is confronted with a surge of violence in the territories, they say, the coalition's hard edge will emerge.

"The problem is going to be that Levy and others are not going to be able to deliver on the expectations that have been raised in the {United} States and elsewhere, because of the kind of government this is," said one representative of American Jews here. "They've made a real effort to lower the level of friction, but the conflicts causing that friction have not gone away."

Still, Israeli observers say Shamir has gained simply by easing the tension in relations with Washington that existed during his three-month interim government. "Shamir managed to work out a kind of quiet understanding with the right-wing politicians that the government should be quiet and show the world it can be moderate," said Danny Ben Simon, a writer on the leftist newspaper Davar. "And he's succeeded in creating the impression that it's not impossible that this government will come to an agreement with the United States."

Shamir's maneuvering has been prompted in large part by concern that Israel's relations with the United States are nearing a crisis, officials say. The Bush administration has shown growing impatience with Israel's reluctance to agree to negotiations with the Palestinians, and even sympathetic congressional and American Jewish leaders expressed exasperation with the political deadlock that left the country without a full-fledged government for three months last spring.

"They have had a series of visitors and messages telling them that it's imperative for them to take a forward-looking position on the peace process and work to maintain ties with the United States and with supporters in and outside the Jewish community," said Harry Wall, the representative in Jerusalem of the Anti-Defamation League of B'nai B'rith. "In short, they had a message and it seems to have gotten through."

On another level, the government appears to have benefited from the underlying competition among its three principal ministers, Arens, Levy and Sharon, who all hope to succeed the 74-year-old Shamir as head of Likud by the time of the next scheduled elections in 1992. "They all are trying to prove that they are the one who gets things done and who can get along with Washington," said one senior official.

Arens, considered by many to be the most moderate of the three, has taken steps to ease tensions in the occupied territories, betting that many Palestinians are tired of the 31-month-old uprising, or intifada in Arabic, in which nearly 1,000 people have died.

In addition to the gesture of releasing prisoners on the recent Moslem feast of Eid Adha, authorities have begun reopening university campuses closed throughout the uprising, and relaxed regulations governing travel and family reunification.

Officials say Arens has met privately with many prominent Arabs, trying to ease tensions at a time when Palestinian frustrations are high. In an effort to appeal to the right, Arens also has courted Jewish settlers in the territories and promised to meet their longstanding demand to set up their own security forces.

Sharon has impressed some of his most fervent opponents by burrowing into the formidable job of solving the housing and employment problems of the tens of thousands of immigrants pouring into the country, while eschewing partisan conflict.

"He is positioning himself very well," said an aide to his longtime rival Shamir. "He is trying to show that he is a problem solver," thereby shedding his image among many Israelis as the general who recklessly led Israel's 1982 invasion of Lebanon.

To most Israeli political observers, the most intriguing figure in the government is Levy, who has been a strong opponent of recent U.S. Middle East diplomacy but has a history of shifting easily between dovish and hawkish political stands. For now, the general expectation of the Israeli press is that Levy is likely to seek accommodation with the Bush administration as the best way of advancing his own ambitions to be elected prime minister. In doing so, he may shift the political balance within both Likud and the government, the analysts say.

Still, even Levy's aides caution that it is too early too say which course the new foreign minister will pursue. "He could go either way," one said. "It all depends on how things develop in the government and in the talks with the United States in the coming weeks."