Israeli policy on settlements imperils U.S. loan guarantees, Quayle warns


WASHINGTON -- Vice President Dan Quayle warned Israeli Defense Minister Moshe Arens yesterday that the Bush administration would find it "very difficult" to support new loan guarantees worth billions of dollars "without some resolution of the settlement issue," a spokesman said yesterday.

In doing so, Mr. Quayle, widely viewed as one of Israel's strongest supporters in the administration, "held to the line" previously expressed by President Bush to Jewish leaders and relayed to Israelis themselves by their Washington ambassador, Quayle spokesman David Beckwith said.

"He emphasized that it would be very difficult to get the housing guarantees without some resolution of the settlement issue," Mr. Beckwith said. According to Israeli sources, Mr. Arens said that Israel's supporters in Congress were making "a full effort" to obtain the guarantees.

Israel's discussion of $10 billion in loan guarantees to help settle a massive influx of Soviet Jews -- and the early White House response -- laid the groundwork for what could be a tough battle on Capitol Hill after Israel presents its formal request in September.

President Bush and Secretary of State James A. Baker III have grown increasingly frustrated with Israel's continued expansion of settlements in the occupied West Bank and Gaza Strip as the United States tries to persuade Arab states, Israel and Palestinians to join in a regional peace conference sponsored by the United States and the Soviet Union.

Mr. Baker has told Congress that there is no greater obstacle to peace. The United States made previous housing loan guarantees conditional on an Israeli promise not to use the money to subsidize new settlements or to settle Soviet immigrants in the territories.

A senior official said Mr. Quayle delivered a "warning as a friend" that it would be unrealistic for the aid to be considered separately from the settlements policy.

But the question of new loan guarantees is not being seriously thrashed out within the administration, another official said last week.

"People here are disposed toward helping," the official said, since the United States played a strong humanitarian role both in pressuring the Soviet Union to ease emigration and in assisting the flight of Ethiopian Jews to Israel.

"On the other hand, we don't want to see this process make the peace process that much more difficult," the official said.

An analyst familiar with administration views said the loan guarantees were seen as potentially strong leverage in getting Israel to reverse itself and agree to two key U.S. terms for a peace conference if Arabs -- particularly Syria -- accept them.

The United States is still awaiting a reply from Syria on whether it will accept just having a United Nations observer at the peace conference and giving Israel a veto on reconvening the conference after direct Israeli-Syrian talks have begun.

Representative Dante B. Fascell, D-Fla., chairman of the House Foreign Affairs Committee, said in an interview that he hadn't detected among his colleagues "any desire for formal linkage" between the loan guarantees and the settlements. He said he had not decided whether to support the guarantees but added, "There isn't any doubt in the world that to absorb that many people, Israel is going to need some help."

Mr. Fascell was among a small group of lawmakers who met yesterday afternoon with Mr. Arens, who is in the United States on a private visit. Mr. Arens also met with Sen. Sam Nunn, D-Ga., and Sen. Daniel K. Inouye, D-Hawaii.

During a meeting with Defense Secretary Dick Cheney, Mr. Arens stressed that with the United States selling to Arab states many of the same weapon systems it has supplied to Israel, the Jewish state needs continued U.S. support for its defense industry to maintain a qualitative edge, Israeli sources said.

Mr. Cheney, reaffirming the U.S. commitment to Israel's security, said sales to Arab allies would be carefully designed not to threaten Israel.

U.S. and Israeli defense officials will meet in August to advance plans on "prepositioning" military equipment in Israel, the sources said.

Mr. Arens raised Israel's concerns about Syria's effort to expand its arsenal, as well as Iraq's continued supply of nuclear material.

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