Israeli children try on the gas masks issued to them more than a year ago as part of a pilot project to protect the populace against chemical attack. On Monday Israel announced it would distribute the masks to all of its citizens but denied Iraqi President Saddam Hussein's recent threats against the country sparked the move. The phased distribution of gas masks to Israeli citizens, Arab and Jewish, will begin next week in three towns. Since the government considers Arabs of East Jerusalem Israeli residents, those Palestinians also will receive gas masks without charge. But other Palestinians will have to buy the gas masks - which cost less than $100 each. (See related story on A3.)