Egyptian Leader Faces High Stakes In Smoothing Mideast Peace Talks

WHEN Egyptian President Hosni Mubarak meets with President Clinton today in the final leg of an international tour, both sides will be seeking to break the impasse in the Middle East peace talks.

The stakes are high for the visiting Egyptian president, Western diplomats here say. Beleagured by government scandals and Muslim extremists intent on destroying Egypt's economy and overthrowing his secular administration, Mr. Mubarak's own credibility at home and throughout the region is on the line.

"Unless the Egyptians can pull off a substantial concession on the deportee issue, it will be disasterous not only for the peace process but also for President Mubarak's prestige in the Arab world and at home," says one diplomat.

The Arabs so far have refused to resume talks until Israel returns 396 Palestinians it deported last December for alleged connections to Hamas and other extremist groups.

If he can convince Clinton to seek an Israeli concession on the deportee impasse, Mubarak has said he has assurances from Syrian President Hafez al-Assad that Syria will resume negotiations with Israel on the Golan Heights.

The other main point of concern for Mubarak in his talks with Clinton, analysts say, is Egypt's annual aid allotment, which was set at more than $2 billion a year as Egypt's reward for signing the peace treaty with Israel in 1979.

Egyptian authorities are deeply worried that Congress will target Egypt as it comes under pressure to find aid for Russia.

At a time of growing unrest in Egypt, the aid issue is crucial for Mubarak. Living standards have fallen sharply during the past three years as the government has removed subsidies on a wide range of consumer products, from food to fuel, in order to comply with an economic liberalization program sponsored by the International Monetary Fund. Egypt's reward for compliance is a $10 billion debt write-off.

"President Mubarak is no good," a Cairo taxi driver says. "Life now is very expensive. Under President Sadat things were very cheap; life was easy." Some analysts say that Mubarak is having to pay for the debt his predecessor incurred, which remains in excess of $30 billion.

Against this background, Egypt has been rocked in the past year by militant Islamic groups seeking to destabilize the economy and overthrow the government. Gamaa Islamiya and other outlawed groups have waged an aggressive campaign against Egypt's tourism industry, which earns $3 billion a year and is the country's biggest source of hard currency. Since the campaign began in October, an estimated $700 million has been lost as visitors stay away in droves.

Mubarak's summary handover of Mahmoud Abouhalima last month to US officials outraged Egypt's Islamic opposition. Mr. Abouhalima is a suspect in the Feb. 26 World Trade Center bombing in New York. Weekend allegations by Abouhalima's brother that he was tortured while in Egyptian custody exacerbated public outrage.

In what has developed into a vendetta between the security forces and Islamic militants, more than 50 people died last month in a series of police raids and militant attacks - the most violent month since the upheaval that followed the Sadat assassination.

With government corruption highlighted by a recent sex scandal that led to the resignation of senior officials, many question the government's moral authority for cracking down on extremists. "People ask themselves, `On whose side are we - are the Islamicists much worse that this corrupt regime?"' says Hussein Amin, a former diplomat.

The Egyptian Organization for Human Rights (EOHR) in a recent report logged a series of horrific abuses including "the severe torture" of children being held as hostages by security forces looking for their relatives. While the EOHR was among the first groups to condemn the violence of Islamic militants, they are now concerned that slum dwellers often are caught in the cross-fire between extremists and security forces.

The Washington-based human rights group Middle East Watch, in a letter yesterday, requested that Clinton pressure Mu-barak on human rights. The groups cites methods employed in the recent crackdown and longstanding abuses, saying: "Both factors combine to alienate many Egyptians from their government and to narrow the country's existing political space, thus increasing the appeal of extremist rheto-ric and alternative."

Diplomats here express concern about the government's concentration on a security solution. They argue the need for opening the democratic process at a time when economic liberalization is on the drawing board, but worry the present team of long-serving ministers cannot achieve competent reform.

"A far-reaching ministerial shake-up is desperately needed to increase the government's credibility," one diplomat argues.

But as a foreign economic expert here argues, Egypt's role as a key regional peace broker requires that the US continue to support Egypt economically to keep Mubarak in power.

"Let's say that the Egyptians would probably be less helpful if we cut aid at the same time as we are asking them to help get the peace process moving with the Palestinians," he says.