Jerusalem — Muhammad Wattad, a father of seven, and Hamad Halaili, a father of 10, are both opposition Labor Alignment members of Israel's Knesset (parliament). They are also Arab citizens of the Israeli state. But according to clauses in the just-passed Israeli budget law which pertain to increased child allowances, they and some 40,000 other large families of Israeli Arabs - whose birthrate is one of the highest in the world - will get no extra benefits.
''Discrimination!'' charges Mr. Wattad, who has spent much of his life working in Israeli establishment politics. So he and Mr. Halaili have petitioned the Israeli High Court to thwart the large-families law in a case that could have important implications for relations between Arab and Jewish citizens of Israel.
''The decision of the High Court will influence a lot the attitudes of Arab citizens toward the state of Israel,'' predicts Muhammad Wattad.
The contretemps began when Tami, a small government coalition partner made up of Israelis of North African origins, many of whom have large families, pressed the government to raise child allowances by about $21 per child per month beginning with the fourth child. (Child allowances are a common social benefit in welfare states.)
While all large Israeli families receive some extra benefits, Tami aimed to boost a category of grants instituted in 1970 under a Labor government which go to families that include a veteran of the Israeli Defense Forces (IDF). This automatically excludes nearly all Arabs, who do not serve in the IDF. (Members of the small Druze Islamic sect do serve and would thus be eligible.)
Army service, compulsory for Israeli Jewish men and women, and involving extensive annual reserve duty for men until they reach their middle 50s, is a criterion for many social and professional benefits in Israel.
But this category would have excluded several thousand large families of Orthodox religious Jews who are exempted from Army service. When representatives of Agudat Israel, another coalition partner which represents the extreme Orthodox community, protested, the government promised to channel additional funds to the budget of the Religious Affairs Ministry, enabling families of full-time students at Jewish religious schools to receive the new benefits.
This last budget juggling, however, came only after Attorney General Yitzhak Zamir had told Cabinet ministers that any attempt to pass a separate law increasing allowances for demobilized Jews and for Jews exempt from the IDF, while not giving the same allowances to non-Jews, would be vulnerable to a High Court challenge on grounds of discrimination.
In asking the High Court to cancel the budget clauses on allowances, the two Arab Knesset members argue that they ''should not be discriminated against because of their religious or national affiliation.'' Sixteen percent of Israel's citizens are Arabs.
When asked why a court case was not brought in 1970, Mr. Wattad said, ''Discrimination existed then, but it was not so deep or so formal.''
Defending the government move, Agudat Israel Knesset member Menachem Porush said, ''I would like to examine all benefits which citizens of Egypt, Syria, and Jordan have and look at what Jewish people over there get - nothing. In Israel we give them (the Israeli Arabs) education like Jewish children, social help and housing like Jewish people.''
Responded Mr. Wattad, ''I have nothing against Mr. Porush, but he doesn't know the facts. Anyway, we are citizens of Israel, not of Egypt. If they want to deal with us as if we are the PLO [Palestine Liberation Organization] that would be another case. But we pay our taxes to Israel and we look for full equality here.''
Mr. Wattad pointed out that the new overseas travel tax of $50 per ticket imposed specifically to pay for the new child allowances will be paid by Israeli Arabs as well as by Israeli Jews.
Increased grants to religious students have roused much unfavorable comment here, as secular Israelis deeply resent these students' exemption from the IDF. But the use of Army service as a criterion for social benefits is a touchy issue in Israel.
Proponents argue that veterans should be compensated for years of lost earning power. But nonveterans are excluded from major education, housing, and job benefits and opportunities. For example, a Knesset committee evaluating the basis for government tuition scholarships to universities just set forth criterion based almost exclusively on Army service or residence in deprived Jewish towns or neighborhoods, thereby virtually excluding Arabs from consideration.
Mr. Wattad argues that military service is used as a ''cover'' for discrimination. ''It is the Israeli Cabinet, not the Arabs, which decided not to call them to serve.''
Few Israelis believe it would be wise to call up Arabs to fight against Arabs outside Israel, but some have suggested a form of Arab national service.