Labor Party Demands Decision Today on Peace Talks : Israel: It wants Likud to agree to a U.S. plan. Rejection may bring down the coalition government.

Stung by conditions set down by their coalition partners, leaders of Israel’s Labor Party demanded Tuesday that the stalemate over peace talks with the Palestinians be decided at a Cabinet meeting today.

Rejection by the rightist Likud Party of a U.S. formula to move ahead with preliminary talks could bring down the 15-month-old unity government.

Both sides accused the other of ultimatum politics. Commenting on Labor’s demand for the Cabinet decision, Foreign Minister Moshe Arens of Likud said, “I believe in ultimatums from enemies but not from friends.”

Labor leader Shimon Peres called for a positive response to the American formula at this morning’s meeting.

“Not reaching a decision means the end of the process,” he said, “and that calls for conclusions on the future of the government.”

A Labor insider said Peres will convene top party officials Thursday if the effort fails.

Shamir’s spokesman said he agreed to today’s meeting of the so-called Inner Cabinet of top ministers from both parties.

The decision to cut short political maneuvering on the volatile question was triggered by Likud’s terms, set out early Tuesday after a grueling five-hour meeting at Prime Minister Yitzhak Shamir’s Jerusalem home.

A statement issued by Yossi Ahimeir, a Shamir aide, said that Likud favors the American proposal but that Israel should speak with “one voice” on the peace process. It also insisted that Labor agree on two “essential and basic issues: guaranteeing Israeli sovereignty over the whole of Jerusalem (and) preventing the Palestine Liberation Organization from taking over the process.”

Peres, the deputy prime minister, rebuffed the terms as negative and unresponsive to the f ormula put forward by U.S. Secretary of State James A. Baker III on how to choose Palestinian representatives to begin the talks. The American plan is designed to permit selection of some Palestinians who have been deported from the occupied territories or have residences or offices in East Jerusalem.

“They (Likud) were asked yes or no,” Peres said. “So what are they trying to do, some mudslinging at the Labor Party? We won’t agree to this.”

“ Chutzpah ,” he labeled the Likud demands, which appear to run counter to Labor positions on the voting rights of Palestinians in East Jerusalem and the anticipated role of the PLO in the proposed talks.

In party meetings Saturday and Monday, the Likud ministers insisted that an Israeli delegation break off any talks at the first sign that the PLO is participating even behind the scenes or if the Palestinian delegation proclaims allegiance to the organization. Far-right members of the party opposed any talks at all, arguing they would open a door that would eventually lead to a Palestinian state in the occupied territories.

Labor leaders have acknowledged that even in the early stages of the process, Palestinian representatives would likely be indirectly advised by the PLO. And West Bank and Gaza Palestinians expected to be among the nominees for preliminary talks have said the PLO must help form and announce the Palestinian list.

PLO leader Yasser Arafat, traveling in Malaysia, said a PLO presence in the talks, proposed for Cairo, is inevitable.

“With whom are they (the Israelis) . . . going to make talks?” he asked reporters. “With ghosts or the invisible men or an invisible delegation?” Shamir, he said, “can’t hide the sun with his finger.”

Labor and Likud leaders are also divided on the question of participation of Palestinians from East Jerusalem in the peace process. Baker’s formula is designed to bridge that gap.

While both parties insist that a unified Jerusalem as the Israeli capital is non-negotiable, Labor leaders favor allowing a few Palestinians from the eastern half of the city, annexed after it was captured from Jordan in the 1967 Arab-Israeli War, to join the preliminary talks under the Baker compromise.

They also favor East Jerusalem voters taking part in later elections as part of the process to decide the future of the occupied territories. There are 140,000 Palestinian voters in East Jerusalem, noted Defense Minister Yitzhak Rabin, Labor’s No. 2 leader. “What are we going to do, annex them?”

Rabin was particularly agitated by the implication in Likud’s demands that Labor is not as firm on Jerusalem’s indivisibility. He said that more top leaders of Labor were instrumental in unifying the capital by force of arms in the 1967 war than were the Likud leaders.

In Washington, State Department spokeswoman Margaret Tutwiler sidestepped all questions about the Likud-Labor differences, saying only that “we are waiting for an answer from the Israeli government.”

Baker himself told reporters: “They are trying to resolve some fairly thorny problems that they have within their government. I think they are working hard and in good faith to resolve those problems. . . . What we would like to see is for them to give us a positive answer so that we can move forward toward a dialogue between Israelis and Palestinians.”

White House Chief of Staff John H. Sununu, addressing a conference of the Simon Wiesenthal Center, the Los Angeles-based group that searches out Nazi war criminals, reiterated the Administration’s general support for Israel.

“(The Administration) is fundamentally committed to the security of the state of Israel,” he said.

Although Sununu drew applause for his reaffirmation that “this Administration is opposed to an independent Palestinian state” on the West Bank, the crowd fell silent when he emphasized that it could not support new Israeli settlement in areas troubled by the intifada .

Times staff writer Jim Mann, in Washington, contributed to this story.