WASHINGTON -- An emerging U.S.-Israeli deal over settlements may mark the triumph of Israel's policy of territorial expansion even as it halts new construction in the occupied territories.
The deal, now under quiet negotiation, represents the first time the Bush administration is using a strong financial lever to curb or halt Israeli settlement building.
This has heartened Palestinian supporters here, who see it as a stimulus for the peace process.
But conditions expected to be imposed by the United States for granting Israeli loan guarantees will focus on halting new construction, not on reducing what is already built or started.
They thus could leave unscathed a vast Jewish settlement structure that has pushed the metropolitan areas of Jerusalem and Tel Aviv deep into the West Bank. Existing settlements in all the occupied territories, including East Jerusalem, now number more than 200 and have a settler population of 242,000, according to the Foundation for Middle East Peace.
With a network of roads and other infrastructure, the settlements have already blurred the "Green Line" that defined Israel's borders before the 1967 war. Building stepped up last year as threats of imminent U.S. pressure mounted.
If Israel obtains the U.S. aid, Prime Minister Yitzhak Shamir "will go to the electorate with loan guarantees, Arabs at the table and a settlement drive to point to," says Martin Indyk of the Washington Institute for Near East Policy.
Arab negotiators believe that only U.S. financial pressure will force Israel to cede territory to Palestinians. But the United States is postponing any discussion of actually dismantling settlements.
"Dismantling is not a feasible option for us," says Bernard Reich, professor of political science at George Washington University. "In the short run, no major settlement is going to be dismantled, period."
Several years will elapse before territory is addressed in Arab-Israeli negotiations, during which time the existing settlements probably will become more embedded in the fabric of Israeli life, create an even broader constituency for their survival and further harden Israel's de facto new borders.
Hisham Sharabi, who heads the Washington-based Center for Policy Analysis on Palestine, said the idea of not penalizing existing settlements "acknowledges the right to settle in the West Bank and Gaza, implicitly." The United States effectively is saying, "We will not contest what you have done so far, but stop doing it."
Asked if this would imply U.S. acquiescence in Israel's refusal to return to its 1967 borders, an official of a pro-Israel Jewish organization said, "There will be people who say that, certainly."
The United States has abandoned the Carter administration policy of calling settlements illegal under the Fourth Geneva Convention.
Even trying to curb new construction in the occupied territory marks a significant increase in U.S. pressure on Israel. While consistently opposing new Israeli settlements as an obstacle to peace, the United States has never before threatened to withhold money as a club to stop them.
Previously, the United States unsuccessfully insisted only that U.S. subsidies not be spent in the occupied territory and that new immigrants not be directed there.
The Bush administration's new determination to link loan guarantees to a curb on settlements has been tough to justify in the face of Israeli assertions that humanitarian aid for settling Soviet emigres should not be linked with political issues.
But with peace talks under way, Secretary of State James A. Baker III is convincing members of Congress that a financial lever is necessary to keep the process going. Arabs have said that unconditional granting of loan guarantees would fuel further settlements and doom the process.
Israel renewed its request last week for $10 billion in loan guarantees to assist the absorption of immigrants from the former Soviet Union.
Given the growing U.S. taxpayer sentiment against foreign aid, even strong supporters of Israel now doubt that the full five-year request will be granted at once. A one-year guarantee of something less than $2 billion is expected, they said.
In trying to avoid a public dispute, the United States and Israel are trying to work out a formula requiring neither side to abandon fixed policy positions.
Scenarios discussed between the two countries include a halt to new construction "starts" in the occupied territories. Since an estimated 15,000 to 16,000 housing units are started but incomplete, the agreement would produce no visible sign of a change in Israeli policy for months.
As a result, Mr. Shamir would have tangible proof of his refusal to accept a settlement "freeze," a word never mentioned last week in Israeli Ambassador Zalman Shoval's meeting with Mr. Baker.
Existing Jewish settlements have already created a structure that critics say shrinks the prospect of full Palestinian autonomy by separating Arab populations and dividing the West Bank.
The Israeli moves to create a Jewish majority in the settlement areas of the West Bank, with concentrations about a half-hour's drive from Tel Aviv and around greater Jerusalem, effectively "constrict the ability of the Palestinians to remain territorially contiguous," says Geoffrey Aronson of the Foundation for Middle East Peace.
But the idea of some adjustment in Israel's internationally recognized borders seems to be gaining acceptance, he noted.
U.N. Resolution 242, the basis for the peace talks, grants each state in the region the right to secure borders. Israel maintains that pre-1967 borders threaten its existence.