Defense Minister Moshe Arens is proposing a program to limit Palestinians working in Israel while creating jobs for them in the occupied territories, his spokesman said Wednesday.

Spokesman Dan Naveh said Arens' proposal would reverse the policy allowing Palestinians to work in Israel - a policy followed since Israel captured the West Bank and Gaza Strip in 1967."It is now time to start changing this so Israelis will get the opportunities in Israel and Arabs will find jobs in the territories," said Naveh.

Arens' proposal, made Tuesday before Parliament's foreign affairs and defense committee, would have to be adopted by the government. The defense minister believes the proposal would increase the Palestinians' autonomy by making them more self sufficient, said Naveh.

The change would be in line with the policy of Arens' Likud bloc. It calls for giving the 1.7 million Palestinians in the occupied lands limited autonomy while maintaining Israel's control over land seized in the 1967 Middle East war.

Arens' plan would require a change in policy denying Palestinians permits to build factories that could compete with Israeli manufacturers. This has left the occupied lands as a captive market for Israeli goods.

The proposal comes at a time when Israel is facing increasing anger from Palestinians and must find jobs for tens of thousands of Soviet Jews who are immigrating to the Jewish state.

Arab labor in Israel became an issue last week after Arens ordered a four-day sealing of the Green Line, the border between pre-1967 Israel and the occupied lands.

The measure cut more than 110,000 Arabs off from their jobs in Israel.