EDITOR'S NOTE - The following copy was submitted to the Israeli military censor, who ordered a significant deletions.

TEL AVIV (AP) - Israel is considering freeing about 700 Lebanese Shiite Moslem prisoners to meet the demands of hijackers holding American hostages aboard a TWA jet, Israel radio reported Sunday.

In Jerusalem, Defense Minister Yitzhak Rabin briefed the Israeli Cabinet on the hijackers' demands in the Cabinet's weekly Sunday morning meeting, according to a communique read to reporters. Any decision to release the prisoners in northern Israel would have to come from the Cabinet.

In Tel Aviv, Israel radio did not elaborate on its report that the Jewish state was considering freeing the prisoners, one of the latest demands made by the Arab hijackers, who landed in Beirut, Lebanon, today for the third time. There were at least 31 hostages still aboard the TWA Boeing 727.

Prime Minister Shimon Peres ordered the 25 Cabinet members and all government representatives ''not to issue any public statement on this subject,'' according to the communique.

Cabinet Secretary Yossi Beilin refused to answer questions after reading the communique to reporters, and government officials cancelled their routine briefings following the weekly government session.

Israel, which invaded south Lebanon in June 1982, is holding about 766 prisoners, mostly Lebanese Shiites, according to International Red Cross figures.

Earlier an Israeli government official in Tel Aviv told The Associated Press, ''We said a long time ago that once we complete the withdrawal from Lebanon, the Shiites would be released. What would be the timing, I don't know.'' He spoke on condition of anonymity.

Israel officially withdrew its last troops from Lebanon on June 10, although Israeli military sources have said as many as 100 troops remain in Lebanon.

Israel transferred 1,167 prisoners April 2 from a prison camp in Ansar, south Lebanon, and since has released at least 468.

The hijackers had demanded Israel free the prisoners by 5 a.m. EDT Sunday. About an hour before that deadline was reached, however, the hijackers ordered the plane to take off from Algeria, where it had been for about 25 hours. It flew to Beirut for the third time since it was commandeered Friday morning on an Athens-to-Rome flight.

Peres, in a speech Saturday night, declined to disclose what Israel would do.

''Our heart is with innocent passengers over there, and we pray to the Lord that they will land safely and be brought back home as they should be by every possible judgment,'' he told an audience in Bet Shemesh, about 25 miles southeast of Tel Aviv.

Israel's official position is that it will not give in to terrorists' demands.

The International Red Cross in Israel, which has assisted in previous passenger releases, could perform its part in any release in slightly more than an hour, Red Cross spokesman Jean-Jacques Fresard told The Associated Press.

''It would take a few hours probably for the Israelis to organize to get them to the border and then to get buses in Lebanon,'' Fresard said.

The hijackers, whose exact number unknown, have killed one unidentified man and have freed freed all but about 40 of the 153 passengers and crew who were initially aboard when the plane was first hijacked.

In Sunday's edition of the The Jerusalem Post, the newspaper referred to the controversy within Israel over a lopsided prisoner exchange last month, in which 1,150 Palestinian and Lebanese prisoners were freed in exchange for three Israeli soldiers.

''If anything,'' the Post said, ''Israel is eager to prove that it has not softened its traditional position on terrorism.''

A militant West Bank settlers movement, Gush Emunim, said a demonstration would be held Sunday in Tel Aviv to discourage any government move to surrender to the hijackers.

''It is clear to everyone that the plane hijacking is a direct result of the encouragement the terrorists got from the last release,'' said spokesman Noam Arnon, referring to last month's prisoner swap.

''We call on the government to stop this erosion in time and to prevent from now on any cooperation with any terrorist action at all,'' he said on Israel radio.

AP-PX-06-16-85 0818EDT