JERUSALEM — In a desperate effort to save money, the Jewish Agency for Israel's governing board has decided to transfer its flagship Youth Aliyah operations to the Israeli government.

The move was part of a radical reform plan approved by the agency's board of governors last week. The plan aims to cut the Jewish Agency's budget by $500 million in the next five years.

The cuts are expected to halt the agency's spiraling deficits and "save" the organization from "having to close its doors" by 1997, said agency chairman Avraham Burg.

Deciding to sever the historic ties between the agency and Youth Aliyah "brought many members of the executive to tears," said Shoshana Cardin, chairman of the United Israel Appeal.

The UIA is the conduit for funds from the United Jewish Appeal-federation campaign to the Jewish Agency, which totals about $200 million yearly.

The programs include residential villages for immigrants, needy Israelis and youths visiting from abroad, primarily the former Soviet Union.

The plan to shift responsibility for Youth Aliyah to the government was hammered out after negotiations with the late Prime Minister Yitzhak Rabin, Finance Minister Avraham Shohat and Absorption Minister Yair Tsaban.

The transfer is scheduled to begin at the start of the next school year and will save the agency $60 million annually.

Burg hailed the agreement as a "historic revolution — the beginning of the desired reform and the agency's adaptation to the changing state of diaspora Jewry."

The agency, meanwhile, will assume total responsibility — now shared with the government — for aid to immigrants for higher education, costing it an additional $45 million.