Israeli Leaders Move to Head Off Rift With Bush

Washington's call on Friday to delay consideration of an Israeli request for $10 billion in loan guarantees met with a quick rebuff from Israeli leaders, who have since softened their response

AFTER a stormy start, Israeli leaders are trying to back away from a full-scale diplomatic row with the Bush administration over its desire to delay consideration of $10 billion in loan guarantees.When President Bush publicly announced his desire to "give peace a chance," by postponing the guarantees, Israeli officials reacted with a mixture of scorn and bitterness. One official, speaking on condition of anonymity, called Bush's argument "nonsense," and hinted that Israel might reconsider participation in a Middle East peace conference, tentatively scheduled for next month. "The Americans are causing trouble," he said, "trouble that may delay or halt the peace process altogether." An Israeli diplomatic source agreed that the peace process might suffer, "because the United States has chosen to link the two processes," referring to the peace talks and the loan guarantees. He suggests Israel might apply its own linkage, delaying the peace conference in retaliation for any delay on the loan guarantees. "In the long run, Israel will say it will go to the peace conference," he says, "but the whole thing will be slower." Prime Minister Yitzhak Shamir, speaking on Israeli television on Friday evening, hinted at possible Israeli retaliation. Asked whether Israeli participation in the peace conference would be affected if the loan guarantees were not provided, he recalled the words of US Secretary of State James Baker III just days earlier. "As Secretary Baker said, 'Everything has an effect, Mr. Shamir said. "This might have an effect as well." In a Jewish New Year interview with Israel Radio, Shamir predicted Washington's action would make it more, not less, difficult to secure Arab cooperation in the peace process. "If the Arabs are handed such a gift, without even asking for it, they will dance on the roofs, make new and even bigger demands, and the peace process will become impossible," the prime minister was quoted as saying. Over the weekend, Israeli leaders tried to contain the storm. Foreign Minister David Levy, who has forged a cooperative image in successive meetings with Mr. Baker, told an audience of ruling Likud party supporters to avoid "harmful and unnecessary statements against the US." Finance Minister Yitzhak Modai remained upbeat, saying the guarantees would "almost certainly be approved." He suggested that a delay in getting the loan guarantees would not be disastrous. "If there is a postponement ... and if we can be assured that at the end of the postponement period the guarantees will be approved, we will have to plan and prepare accordingly," Mr. Modai told Army Radio. Israel's 1992 budget, largely Modai's work, rests on the assumption that Israel will receive $2 billion in loan guarantees annually for five years. Some observers have predicted that it may need to be substantially overhauled, if not completely rewritten, if the guarantees are not provided in time. Israel needs the guarantees to help meet the cost of absorbing the continuing flood of Jewish immigrants from the Soviet Union. Estimates by the Treasury and Bank of Israel indicate that Israel needs $20 billion over the next five years if it is to absorb the predicted 1 million immigrants. Among the Arabs, the question of Soviet Jewish immigration is intimately associated with that of Israeli settlements in the occupied territories. Even though statistics show that a relatively small percentage of new immigrants have settled in the territories - with the exception of East Jerusalem, where many are to be found in Jewish suburbs - Washington has made it clear that at this delicate stage in the peace process, it is willing to lend an ear to Arab concerns. Israel rejects the connection altogether. "There is no connection between the two," Modai said when asked if Israel would prefer to drop the issue of guarantees rather than agree to halt settlement. In his radio interview, Shamir denied that settlements affected the peace process. "It is not true that this is the key to progress, as some people claim." Among those making such a claim is Mr. Baker, who has described settlements as the biggest obstacle to peace. Israel's settlement drive has gone into high gear in recent months, with the establishment of new communities occasionally coinciding with Baker's visits to the region. Dan Halpern, a former Israeli economic attache in Washington, said it would be in the Israeli government's interests to give assurances to the US regarding settlements. "We should convince our friends in the United States that the fact that we are going to get, hopefully, those guarantees, will not mean, on the other side, that Israel is going to increase its settlement activity," he told Israel Radio. Shamir shows little sign of a willingness to give such assurances. In his radio interview he said he was not aware of the precise plan for continued settlement, but indicated that the BJewish presence in the territories would continue to grow.