WASHINGTON -- Two key senators have crafted a compromise loan guarantee proposal for Israel, but it appears to fall short of Secretary of State James A. Baker III's requirement of a halt in new construction in the Israeli occupied territories.

The plan would provide up to $1 billion worth of loan guarantees to Israel immediately, without making them subject to presidential discretion, according to a source familiar with the plan. The Bush administration would be able to block future sums, depending on whether Israel met conditions in the bill. The initial $1 billion also would be reduced on a dollar-for-dollar basis if Israel continued to build housing in the occupied territories.

Sen. Patrick J. Leahy, D-Vt., and Sen. Bob Kasten, R-Wis., submitted the proposal to the State Department this week.