Israelis reject links between U.S. aid, new settlements


JERUSALEM -- Israeli government officials yesterday rejected veiled U.S. threats to link $10 billion in loan guarantees vital for new Soviet immigration with a freeze on settlements in the occupied territories.

Ministers of Yitzhak Shamir's conservative government, which supports expansion of Jewish settlements in the occupied territories, said they would attempt to persuade Washington that the two issues should be treated separately.

"We are doing everything so this linkage will not be made," Foreign Minister David Levy said after yesterday's weekly cabinet meeting here.

The ministers spoke after Zalman Shoval, Israeli ambassador to Washington, said Israel would be forced to choose between the loan guarantees from Washington and expanding settlements in the territories. Mr. Shoval made his comments on the Voice of Israel radio network Saturday.

Prime Minister Shamir's office immediately distanced itself from the ambassador's statements.

"It is important to clarify that the government of Israel does not believe there is any justification to link aid for immigrant absorption to taking stands on policies related to the peace process negotiations," Mr. Shamir's office said.

Yesterday, Health Minister Ehud Olmert defended the Israeli ambassador, saying Mr. Shoval was describing the choice rather than defending it.

"He expressed his fear, and I certainly share his fear that the Americans will put it that way," Mr. Olmert said.

"What is important is the stance of the government, and I don't think we have to link this, and I don't believe he intended to link this," the health minister said. "If you don't want to be faced with such a choice, you will not be faced with it, and we will not be faced with it."

According to diplomatic sources here, U.S. Secretary of State James Baker was upset that construction of new settlements in the occupied West Bank and Gaza Strip continued during his recent visit to the region to promote an Israeli-Arab peace conference. He has called the settlements a major obstacle to peace, a point which Mr. Shamir has refused to concede.

"I will say one more time, there is no bigger obstacle [to peace] than the continued enhanced settlement activity that we see going on in the territory," Mr. Baker told the U.S. Senate Appropriations Committee last month.

There are 100,000 Jews living in the occupied West Bank and Gaza Strip, home to 1.8 million Palestinians.

Mr. Shoval's warning was reportedly not the first, although it was the first public acknowledgment of the U.S. government's position by an Israeli official. According to Israeli press reports, American Jewish leaders in recent days have privately told Israeli officials that they risk losing congressional and administration support for the loan guarantees if settlements continue to expand.

Last week, the leftist Peace Now party released figures accusing the government of planning to build 30,000 new housing units, including five new settlements, in the occupied territories.

The government disputed the figures -- saying only 13,000 new units were slated for construction -- but did not deny plans for expansion existed.

Treasury officials here said that without the guarantees, Israel would be forced to borrow the money at higher interest rates, payable over seven instead of 30 years, and that it was uncertain whether banks would lend Israel the entire $10 billion.

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