Palestinians Harden Position on Peace Talks

THROUGH two rounds of Middle East peace talks, halting Jewish settlement in the Israeli-occupied West Bank and Gaza Strip has been a principal Palestinian goal.

As round three begins Monday, Palestinians are threatening to change the ground rules. Frustrated by an unprecendented expansion of settlements, Palestinian leaders are weighing whether to make a settlements' freeze the precondition to - and not just an objective of - future peace talks.

"We insist that Israel should freeze the settlements," says Farouk Kaddoumi, the head of the Palestine Liberation Organization's (PLO) political department.

As Palestinians and negotiators from Israel, Syria, Lebanon, and Jordan converge on Washington this weekend, the settlements issue is not the only one threatening the peace process. In Lebanon fighting between Israeli and Shiite Muslim forces complicates the participation of Lebanon and its patron Syria.

In Washington, meanwhile, the Bush administration and Congress are on the verge of a consequential decision over a $10 billion loan guarantee request from Israel, which could have direct bearing on the peace process.

This is the third round of bilateral talks launched last October in Madrid. Other states in the region will be joining multilateral talks on regional issues ranging from water resources and arms, to economic development.

Mr. Kaddoumi has been lobbying for Arab nations to honor Palestinian demands that they not move to other issues in either the bilateral or multilateral talks without ensuring a freeze on the settlements, Palestinian officials say.

Jordan, Syria, and Lebanon, the three other Arab parties involved in the talks, have agreed to back the Palestinian demand, according to these officials.

However, the three governments did not promise to pull out of the talks if Israel insisted on its position to continue settlements in the occupied territories, Palestinian and Arab officials say.

In fact, the PLO, which has been supervising the Palestinian delegation despite its exclusion, has not yet decided whether to withdraw from the talks if Israel maintains its stance. US loan guarantee is key

The Palestinian position is expected to hinge, to a large extent, on US success in pressuring Israel to stop settlement activity in return for the $10 billion loan guarantee. The US position is seen as a test of its commitment to negotiations on the basis of exchanging land for peace.

If the US approves the loan guarantee without a cessation of settlements, the PLO will find itself under serious pressure to pull out of the talks, Palestinian officials say.

"The PLO will be risking a split if Palestinian engagement in the peace process continued without progress on the settlements," says a senior PLO official, who asked not to be named.

Palestinians have put forward a model for autonomy that cannot be implemented without a cessation of settlement activity.

According to Palestinian officials, US Secretary of State James Baker III has already notified the Palestinians that Washington prefers to attach conditions to the loan guarantee than withhold it.

"Mr. Baker's argument [is that] the US would have less leverage over Israel if the latter had to go to commercial banks [in the US] to get the loan [guarantee]," a Palestinian official says.

But Palestinians feel that even with conditions attached to the loan guarantee, Israel will be encouraged by the flow of money to continue confiscating territories to build settlements. Furthermore, the US conditions will not stop the building of settlements already under construction.

In the view of the Palestinians and Arab governments, the Israeli position on settlements is rendering the whole process meaningless since it indicates that Israel has no plans to withdraw from the territories it occupied in 1967. Israeli refusal

The Arab position has hardened in response to the Israeli refusal to make territorial compromise and to recent Israeli air raids against Palestinian refugee camps in Lebanon.

"We are less optimistic than before. We do not view any signs that Israel is serious," a senior Jordanian minister said.

But neither Jordan nor Syria are expected to base their positions on how the US handles the loan guarantee. According to well-informed Arab sources, the US has recently assured Syria and Jordan that its quiet diplomacy is making headway on the settlement issue.

The PLO will find it hard to pull out the Palestinian delegation without Arab backing even though it cannot stem growing frustration over lack of progress.