QUIETLY, among the razzle-dazzle and rhetoric about Middle East peace talks, something has been going on that makes the whole effort seem unreal. The spotlight has been, understandably, on the people involved, their views, and the land on which they live. There has been no real discussion of the element essential to life, let alone peace. The issue of water has been raised only marginally even though the entire region is gripped by a shortage that begins to approach catastrophe.Last winter's rainy season in Israel and Jordan was the driest in 70 years. A decade of drought has depleted the vast Nile watershed in East Africa. Even the Euphrates Valley faces a crisis as Turkey draws more of the river's water for a giant irrigation project in southeast Anatolia. Iraq and Syria, which depend heavily on the Euphrates, consequently face increasingly severe cuts over the next 10 years. In Saudi Arabia's al-Hasa province, where enormous sums of money have effected an agricultural miracl e in the desert, the deep-drill wells have lowered the water table by seven or eight feet. Israel made the desert bloom; the symbolic achievement and dogged willpower that has never said die. Irrigation has been expanded sixfold since 1948. Now reality is asserting itself. There is no longer enough water. In normal years, Israel averages less than five inches of rainfall - about as much as New Mexico. But the past three years have been subnormal. To be sure, Israel does not depend on rainwater. One major source, roughly 40 percent, is the Jordan River, whose headwaters Israel controls. The Sea of Galilee (Lake Kinneret to the Israelis) is the Jordan's greatest reserve. Today, the level of the lake is the lowest it has been in 60 years, down to the "red line" level at which it can no longer be pumped without becoming saline. The other major source of water is two aquifers, waterbearing substrata. One, the mountain aquifer, lies underneath pre-1967 Israel and the occupied West Bank; the other, along the Mediterranean coast down to Gaza. Experts say they have both been overdrawn by a year's supply and continue to be overpumped by 15 to 20 percent annually. The water in the tiny Gaza Strip, with its 700,000 Arabs, is becoming brackish and unfit for agriculture and for human consumption. The Israeli government awoke to the emergency last winter when Comptroller Miriam Ben Porat, an independent authority, reported that 25 years of "irresponsible water management" had drained the country's water reserves and damaged their quality. Sweeping private conservation measures were decreed but the main wastrel is agriculture, coddled for so long, which must now be drastically redirected with different crops, better techniques, and higher water prices. This process will take years, even after the n ecessary political support is mustered. At the same time, Prime Minister Yitzhak Shamir wants to receive and settle a million Soviet Jews. The resulting population pressure will be felt mainly in the occupied West Bank where Shamir and Housing Minister Ariel Sharon are establishing and expanding Jewish settlements as quickly as they can, and for which they will soon formally request $10 billion in loan guarantees from the United States. The Arab population is growing too, but Arab consumption of water is capped by the military government at ro ughly the level of 1967. Each Jewish settler is said to consume nine times as much as his Arab counterparts. Normally, personal use is a minor factor in water supply, but Prof. John Waterbury of Princeton University says that in the small scale of the Jordan basin, an increase in population results directly in an increased demand for water. In a condition of peace, Israel could meet the crisis with little difficulty and without prohibitively expensive large-scale desalinization. Farmers could concentrate on cash crops, with fruits and vegetables imported from lower cost producers. Water could be bought from Lebanon next door, whose Litani River runs largely to waste, or from Egypt, even when the Nile is not high. Fresh water could be hauled from Turkey in special barges. In fact, there is talk that the urgent common interest in the region t o conserve water might push all parties into cooperation. But water cannot come first. The precondition is genuine peace in which Israel's neighbors are satisfied and the always mistrustful Israelis are not afraid to put their lifeline in someone else's hands. That is the peace the United States is still trying to broker. It is the peace which Israeli settlement policy, pursued as Shamir vows to do as though sheer willpower would win out again, threatens to make unattainable.