The Reagan administration had originally proposed that Congress grant Israel a subsidy of $2.475 billion for the fiscal year 1983.
It did this in spite of the fact that Israeli Prime Minister Menachem Begin has refused to comply with the President's request that he suspend the building of settlements for Jews in the occupied Arab territories.
It did this even though Israel invaded Lebanon despite repeated requests from Washington by the President that it not do so.
It did this in spite of the fact that at the climax of the Israeli invasion of Lebanon the Israeli armed forces admitted Lebanese Phalangist militiamen into the Palestinian refugee camps in Beirut with consequences which shocked the civilized world.
It did this even though the Israeli government is refusing to withdraw its troops from Lebanon as the President asks them to do. Instead, Israeli administrators are running southern Lebanon. The appearance increases daily that the Israeli government intends a long-term occupation of southern Lebanon.
The proposed subsidy for Israel for 1983 is 21 percent higher than the 1982 subsidy. It takes up 28 percent of the entire budget for foreign aid for the 1983 fiscal year. In terms of generosity it, plus other nonbudget forms of American aid to Israel, represents nearly $1,000 per head per year for every Jewish citizen of Israel. It is probably the most generous subsidy ever granted in history by a great power to a small client.
But it was not enough for the Begin government in Israel. That government objected to the fact that the Reagan budget proposal changed ''the mix'' between loans and grants from the previous year. While the total was larger, the amount in direct grants was smaller; the amount in loans higher.
The Begin government arranged through its friends in Congress to have the Senate appropriations subcommittee on Israel vote unanimously on Nov. 30 to change the mix again and give Israel $475 million more in direct grants than the administration had intended.
This was deemed at the White House to endanger the balance in the foreign aid program.
Deputy Secretary of State Kenneth W. Dam wrote a letter to the Senate Appropriations Committee chairman, Sen. Mark O. Hatfield (R) of Oregon, urging that the Senate committee support the original proposal of the President. To change that proposal and increase aid to Israel would, the letter argued, ''strengthen the hand of those who are content with the status quo, while calling into question among others the US commitment to an honorable outcome.''
The letter also said that the proposed increase would ''imperil the strenuous efforts we are making to find a settlement in Lebanon and to make progress to a broader peace.''
The letter from Deputy Secretary Dam triggered an angry response from Israel. Israeli Foreign Minister Yitzhak Shamir went on Israeli television calling the Reagan administration action ''appeasement.'' ''I can only express our amazement and consternation,'' he said. He claimed the action was a ''clear violation'' of pledges to not link aid to Israel with ''political issues.''
Thus was joined a direct test of the relative influence of the President of the United States and of the government of Israel in the Senate Appropriations Committee.
Two members of the committee, Senator Hatfield and Sen. James A. McClure (R) of Idaho, have indicated that they would like to support the President on this measure. But when the matter came to a decision the committee did not take a recorded vote. It simply went on record as approving the subsidy for Israel in the form requested by the government of Israel.
The revision increased the direct grant for 1983 by $475 million. The total stands now at $2.6 billion. This was made up of an increase of $125 million in economic aid and a transfer of $350 million from military loans to military grants.
In other words, a gentle attempt by the administration to indicate displeasure with Israel (by resisting an increase in aid to Israel) has been outvoted decisively in the Senate. Mr. Begin has proved that he can ignore the President's peace plan, ignore his requests for withdrawal from Lebanon, ignore his request for a freeze on Jewish settlements in Arab territory - and still get what he wants in subsidies from the Congress.
Unless or until this condition can be reversed, President Reagan's plan for peace in the Middle East is stalled. Mr. Begin has no incentive to negotiate if he can go on taking Arab territory at will and continue to enjoy his super American subsidy.