Israeli Independence Day, normally a day for drawing the country together, this year has spotlighted the nation's internal divisions. The Israeli government chose its 35th anniversary Monday to dedicate perhaps its most controversial civilian Jewish settlement in occupied Arab territory to date: ''Upper Nablus,'' directly overlooking the 70,000 Palestinian residents of the West Bank's largest city of Nablus.
Opposition Labor Party leaders, in one of their most outspoken attacks on government settlement policy, called in vain for the cancellation of the ceremony. They said it would divide the nation on Independence Day and might lead to violence between supporters and opponents of settlements. Since last Independence Day, the country has also been deeply split by the controversial war in Lebanon.
The dovish Peace Now movement turned out several thousand followers in the freezing rain and hail, walking through thick red mud to protest the dedication on a mountaintop 40 miles from Jerusalem. Few children were in evidence; many demonstrators were nervous about a possible repeat of a Peace Now demonstration two months ago when a member was killed by an Israeli Army issue grenade thrown by an unknown assailant.
But the Israeli government's decision to flout both domestic opposition and a recently accelerated United States government public campaign against continued settlement as an obstacle to any future Israeli-Arab peace negotiations, gave clear indication of its confidence that it can carry the country on this issue.
Prime Minister Menachem Begin told the nation in an Independence Day speech that settlement construction was not an obstacle to peace. He emphasized that Israel had an inalienable right to West Bank land.
However, a scheduled appearance by Defense Minister Moshe Arens at the dedication was canceled at the last minute. According to some observers, he was sensitive to excessively offending the US, which yesterday gave the go-ahead to sharing technology for Israel's Lavie fighter plane. Deputy prime minister, David Levy, avoided Peace Now demonstrators by holding a ceremony in a nearby private home and making no public appearance. And the nation's two chief rabbis declined to take part in the ceremony, thus preventing further divisiveness.
The scene of the controversy, Mt. Gerizim (the ''mountain of blessings'') looks out over spectacular rolling green and brown hills and, on one side, directly over Nablus. Until now a military outpost called Bracha, Upper Nablus became a permanent home for 15 families Monday out of a projected 800 living in mobile homes already linked to electricity and telephone grids.
The establishment of Upper Nablus hits directly at the heart of the Labor Party's settlement policy. While accepting the Jewish settlement in certain areas of the West Bank, Labor has opposed it in areas where there is a large Arab population, hoping that these could ultimately be returned to the neighboring Arab state of Jordan in a territorial compromise for peace. Labor leader Shimon Peres said the planned settlement would help make Israel a Jewish state with a large Arab minority and would reduce the chances for achieving peace with its neighbors.
The pro-Labor Party paper, Davar, editorialized that the settlement ceremony was ''a contradiction of the original intentions of Zionism,'' putting supporters and opponents of settlement - as well as Israeli soldiers protecting the area - in conflict ''on this symbolic day.''
For Peace Now demonstrators, who arrived in scores of chartered buses from all over the country, the demonstration was an attempt to challenge government contentions that there is a consensus over settlements. ''I know that I'm in a minority, but I want to show that Independence Day doesn't belong to one group only, that the government is dividing the country,'' said Jay Hurvitz, a member of Kibbutz Hatsor, as he huddled in a blue parka against the hail stones.
A recent Israeli public opinion poll for the Jerusalem Post by the Modi'in Ezrehi Research Institute indicated that exactly half the respondents would support a temporary stop to settlements for a specified time, only to facilitate peace talks with Jordan. The Israeli government has opposed even a temporary halt although one was reportedly suggested by Defense Minister Arens while he was still ambassador to the US in order to soothe relations with the Americans.
Yet Prime Minister Begin's popularity remains high and opponents of the settlements have few avenues to make their views felt. Polls show Labor trailing far behind the governing Likud coalition. The force of Labor's policy is blunted both by the failure of Jordan's King Hussein to join peace negotiations and by the fact that the party supports some settlements and not others.
Thus despite misgivings on the part of many Israelis - albeit a minority - domestic obstacles to settlement are minimal. ''The fact that today there are many Arabs in the area and we are small is just a matter of time,'' said new Upper Nablus resident Yedidia Atlas. ''Fifty years ago, Tel Aviv was a small town near the big Arab city of Yaffa.''
While Monday's demonstration was peaceful, the divide between pro-and anti-settlement groups has become increasingly acrimonious. It is typified by the remarks allegedly made by outgoing Chief of Staff Rafael Eitan to a closed parliamentary committee that when 100 settlements were established, Arab opponents would ''scurry about like cockroaches in a bottle.''
One Upper Nablus ceremony participant, asked by a Peace Now member why he was carrying a gun, replied, ''in case the Arabs throw stones.'' The demonstrator replied bitterly, ''Why don't you use insecticide if they are only cockroaches?''