Cloud over Egypt talks. Synagogue attack could hinder Peres's ability to discuss Palestinian issue

The weekend terrorist attack on an Istanbul synagogue is expected to cast a shadow over a projected summit Thursday between the Israeli and Egyptian leaders. The meeting between Israeli Prime Minister Shimon Peres and Egyptian President Hosni Mubarak, if held, is expected to include discussion of the Middle East peace process as well as bilateral issues of trade and diplomatic relations. Egypt says it wants the Palestinian issue to be at the forefront of the talks.

But Prime Minister Peres and President Mubarak will be constrained in their ability to discuss the issue of Palestinian representation in and a role for the Palestine Liberation Organization in any international Mideast peace conference, analysts say.

The backlash in Israel against the Istanbul attack could limit any concessions Peres is willing or able to offer on the Palestinian issue. Saturday's attack, which killed 21 Jewish worshipers, is widely considered in Israel to be the work of renegade Palestinian leader Abu Nidal's group.

At the same time, observers say, if Palestinian involvement is established in the Istanbul attack as well as in Friday's takeover of a Pan Am jet in Karachi, Pakistan, it would be difficult for Mubarak to push Peres to be more flexible on the Palestinian issue.

At time of writing, Israeli and Egyptian delegations -- prodded by United States envoy Richard Murphy's shuttle diplomacy -- were working furiously in Cairo to nail down details for a summit. Last minute disagreements between Israel and Egypt over how to resolve their border dispute have threatened to scuttle the summit. But diplomats and observers in both countries speculated Monday that the summit would indeed take place Thursday in Alexandria, Egypt.

The pressure on Peres was demonstrated this weekend. A dramatic Cabinet crisis was sparked by Trade Minister Ariel Sharon's remarks that Israel's ``pleading for peace,'' ``readiness for concessions,'' and ``pursuit of dubious peace plans'' had ``weakened Israel's defenses'' and invited attacks by Palestinian terrorists. Israel's positions have made Jews in Israel and abroad more vulnerable to attack, Mr. Sharon said.

Sharon's statements infuriated Peres, who said they amounted to blaming the Israeli government for the Istanbul attack. Peres abruptly ended the regular Cabinet meeting Sunday, demanding a retraction from Sharon, which he issued some 12 hours later.

Observers say the Sharon incident showed that the weekend terrorist attacks in Istanbul and Karachi could be expected to reduce Peres's room to maneuver in Cairo on the issues of Palestinian representation and the PLO's role in an international conference. Sharon had demanded that Israel make any negotiations conditional on the closure of PLO offices in Jordan and Egypt.

Observers say the summit also may delay any Israeli or United States plans for immediate retaliation for the Istanbul and Karachi terrorist attacks. In recent days Israeli leaders have said Israel would punish the perpetrators of the Istanbul attack. Sharon said Israel should hit back at terrorists regardless of the effect of such a move on prospects for peace negotiations.

A retaliatory strike on an Arab target, observers say, would place Mubarak in a difficult position in the Arab world, where he is already vulnerable because of his country's peace accord with Israel.

An Israeli retaliation strike could -- like its raid last October on PLO headquarters in Tunis -- be widely perceived as a blow to the very peace process Peres wants to promote in his expected meeting with Mubarak. The reaction such an attack would provoke in the Arab world could undermine the prospects for an immediate breakthrough, observers say.

Any response to the weekend's attacks is therefore widely expected to be delayed until after the projected summit, which is seen to be in the interests of Israel, Egypt, and the US. Egypt seeks increased economic aid from the US. Analysts say holding the US-brokered meeting could help Egypt's case. Peres is eager to keep up the momentum of the peace process and to vindicate his peace strategy to hard-liners at home. A failure to hold the summit would also cast a shadow over his scheduled Sept. 15 meeting with President Reagan in Washington. --30--{et