Jerusalem — Profit vs. principle. This is the argument in Israel's opposition Labor Party debate over whether to approve building by Labor-controlled construction firms of homes for Jewish settlers in the occupied West Bank - despite the Labor movement's opposition to Jewish settlements in areas densely populated by Palestinian Arabs.
So far, the central committee of the Histadrut, the trade union federation, founded and still controlled by the Labor movement, has given the green light for its companies to build. Since government funds are rapidly being shifted away from building inside Israel proper into the occupied territories, the managements of the companies argue that they have to win contracts on the West Bank to keep their workers employed.
The ideological debate thus stirred within the Labor Party is a consequence of current Israeli government strategy to speed up Jewish settlement in the West Bank and Gaza Strip. ''Official plans for continuing settlements of the territories,'' writes Yosef Goell in a study of settlements for the Jerusalem Post, ''are being based on the harnessing of pressing personal needs and of the profit motive to the expansion of the Israeli presence in the territories.''
The shift of government construction funds into the territories is one of a growing number of economic incentives aimed at increasing the numbers of Jewish settlers. These incentives are being offered despite President Ronald Reagan's call - in his Middle East peace initiative - for a settlement freeze as the key prerequisite to drawing King Hussein of Jordan into peace negotiations with Israel over the future of the West Bank.
Ironically, economic incentives for settlement affect Palestinian Arabs, too. Almost all West Bank settlement housing is being constructed by Palestinians, who explain their willingness by saying they must earn a living to remain on West Bank land.
At the moment the involvement of labor federation companies in West Bank building projects is relatively minor. ''The problem is the future,'' says Ben Rabinovitch, head of the economic department of Hevrat Ovdim, the Histadrut holding company.
In 1979, the government built 15,000 units of housing altogether, only 600 of them in the territories. The rest were in Israel proper. Today of 8,000 government-financed units under construction, 2,500 are in the territories - a rise from 4 to 30 percent in three years.
Histadrut officials say that with this push of government funds into the West Bank, were they to ban all Histadrut work there, they would have to lay off hundreds, if not thousands of workers. Argues one key Labor official, attempting to blur the ideological issue, ''If the Histadrut acts only as a contractor and not as a promoter of these (West Bank) projects, building in Judea and Samaria (the biblical names for the West Bank) is no different from building in South America or Africa.''
But Labor Party dove Yossi Sarid, who has promised to battle within the Labor Party against a final Histadrut go-ahead, insists, ''This is an ideological surrender on the part of the Labor movement.''
The transfer of government construction funds to the West Bank is only one of a series of massive government incentives being offered to speed up building there.
All construction on the West Bank is heavily subsidized by the government. West Bank state land - from 55 to 65 percent of the total, which Israel as ruling power claims control of - is handed over by the Israel Land Authority to the Ministry of Housing and Construction.
The ministry sold it to contracting firms for only 5 percent of its value, as opposed to the 80 percent of value that would be charged inside Israel proper. (The government, according to Israeli press reports, is contemplating setting the price 10 times higher, which would still leave West Bank flats significantly cheaper than those inside pre-1967 Israel.)
On Dec. 16, 1982, the Housing Ministry made operative a new support program for West Bank settlements. Settlers in the West Bank area closest to the center of Israel, an area slated to become bedroom suburbs for Israeli's metropolitan centers, are eligible for special low-interest loans of about $20,000. An average flat in this area might cost around $60,000, some one-third to one-half the price of a similar flat in a major Israeli city.
For those going farther out, where units are even cheaper, assistance may amount to $30,000, part of it grant, much of it interest free, and only part of the loan repayment indexed against inflation. In a country where there is no regular mortgage system, this is an unprecedented bonus.
Such aid is substantially larger than that given to encourage Israeli settlement in development towns in more remote areas of Israel, which already complain bitterly about neglect.
Moreover, young couples who get housing loans inside Israel can use the money only for modest apartments, while in the West Bank it can be put toward villas or townhouses.
The government is also about to embark on a large-scale publicity campaign urging Israelis to settle in the territories. The Ministry of Labor and Social Affairs has budgeted $150,000 for promotion activities.