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Penalties sought for Israeli settlement Senator maps curbs on loan guarantees


WASHINGTON -- The chairman of a key Senate foreign aid committee warned yesterday that Israel would be penalized for any further development of settlements in the occupied territories.

The terms spelled out by Sen. Patrick J. Leahy, D-Vt., who chairs the panel that funds U.S. foreign operations, went a tougher step beyond the Bush administration on conditions for a $10 billion loan guarantee Israel wants to cover the cost of absorbing thousands of Jewish immigrants from the former Soviet Union.

Mr. Leahy's warning came on the eve of a new round of talks today between Israel's ambassador, Zalman Shoval, and Secretary of State James A. Baker III. The administration has indicated it would only demand a halt in new construction in the settlements and would not prohibit the completion of construction already begun.

Israeli officials said last night they were aware of the senator's proposal but declined to comment further because it would probably be discussed in today's meeting.

Mr. Leahy's terms for the $10 billion guarantee Israel is seeking over the next five years would attempt to freeze practically all settlement development and impose a dollar-for-dollar reduction in the loan proceeds for any new building.

It would effectively prevent Israel from moving ahead in the rapid expansion of settlements undertaken last year in apparent expectation of U.S. action to stop the program.

Thousands of housing units have been started but are incomplete. The United States regards settlements as an obstacle to peace in the Middle East because they are being built on territory claimed by Palestinians.

Mr. Leahy told reporters yesterday that he would impose the dollar-for-dollar aid reduction both for government-funded and private construction. The penalty would be imposed for any construction, even to complete existing units, after a certain date. Aides said this date would be contemporaneous with an agreement on the loan guarantees.

Mr. Leahy also opposes approval of more than $2 billion in the first year, meaning that Israel would have to return for additional guarantees.

The administration is expected to also demand economic reforms from the Israeli government.

Mr. Baker has refused publicly to confirm the conditions he has spelled out. A senior administration official said, however, that the Leahy conditions were seen as part of an overall package to be agreed on by the United States and Israel.

Mr. Baker has stressed this week that the administration would approve additional aid to Israel "only on terms and conditions that support United States policy positions."

In testimony before the House Foreign Affairs Committee yesterday, he disagreed with the contention of Israel's supporters that the loan guarantees would be cost-free to the American taxpayer.

While Israel has offered to absorb costs of underwriting the loans, he said, this "depends upon their satisfaction with what those costs are estimated to be."

Officials say Israel is willing to pay $100 million, but the costs of a budget reserve required to back the guarantee under U.S. law are expected to be substantially higher.

One factor the United States must weigh in determining how much of a reserve to allow, Mr. Baker noted, is "the likelihood of repayment."

When Rep. Benjamin A. Gilman, R-N.Y., said that Israel had an excellent record on loan repayment, Mr. Baker replied that this appeared to be the case, "generally speaking, because we appropriate the money up here with which to repay ourselves."

Mr. Leahy, putting pressure on both Israel and the administration to reach a quick agreement on the loan guarantees, has warned that no foreign aid bill would pass the Senate without them.

The administration wants a foreign aid bill to fund, among other things, new assistance to the former Soviet republics. Mr. Leahy is due to meet with Mr. Baker today.

The senator noted that if Israel's supporters sought a separate legislative vehicle for loan guarantees without strict conditions, President Bush could veto it.

Mr. Leahy said it would be impossible to actually legislate a construction halt by Israel.

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