THURMONT - As high-wire Middle East peace talks entered their second day at Camp David yesterday, Israel buckled under to months of U.S. pressure by canceling the sale of a sophisticated airborne early warning system to China.
Israeli Prime Minister Ehud Barak told President Clinton of the decision to scrap the $250 million sale late Tuesday, just before they joined Palestinian leader Yasser Arafat for a supper of beef tenderloin and filet of salmon, U.S. and Israeli officials said yesterday.
"Israel, which is cooperating with the United States at the start of an effort to achieve historic decisions affecting its essential interests, cannot continue under current circumstances to carry out the Phalcon project," said Barak spokesman Gadi Baltiansky. "The decision was taken ... due to United States opposition to the deal."
Israeli-Palestinian peace negotiations continued last night, with Barak, Arafat and Clinton dining together after a "busy day" of "real engagement ... on the substantive issues," said White House spokesman Joe Lockhart. He refused to give details of the talks.
U.S. officials had feared that China could use the Phalcon radar system in an invasion of Taiwan and to defend against U.S. warplanes in any conflict.
Beijing regards Taiwan as a renegade province; the United States has agreed to provide defensive weapons to Taiwan.
Congress had threatened to cut U.S. aid to Israel by $250 million - of total annual assistance of more than $2.5 billion - if the Phalcon deal went through.
Clinton administration officials welcomed the cancellation, which is a blow to Israel's defense industry and is likely to further erode Barak's relations with Israeli conservatives.
The Phalcon project involved a radar system mounted on a modified Boeing jet. Israel initially agreed to sell China several Phalcon systems for about $1 billion, but had been trying to gain U.S. approval for a scaled-down deal of one system worth $250 million.
Israeli defense officials expressed concern that the cancellation of the radar deal gives the appearance of a U.S. veto power over Israeli arms sales that could deter prospective customers from signing contracts.
"We are pleased that they have taken our security concerns into account in making this decision," said Lockhart, adding that he was unaware of any U.S. promises to compensate Israel for the lost revenue.
Officials at the Chinese Embassy in Washington did not return phone calls seeking comment.
The scrapping of the Phalcon sale comes as Clinton is pressing Barak and Arafat to make painful and politically dangerous concessions on Palestinian statehood, the status of Jerusalem, a "right of return" for Palestinian refugees, Jewish settlements and other issues blocking the way to Middle East peace.
The timing of the Phalcon announcement, as the Camp David talks pick up steam, could earn Barak points with Clinton. Israel is expected to request billions of dollars in U.S. aid as part of the implementation of any agreement reached at Camp David.
Clinton met quietly with congressional leaders before the summit to discuss U.S. assistance linked to a Middle East agreement.
However, an Israeli official denied that the Phalcon decision had been delayed to coincide with the peace negotiations.
"We've been working on this for a while at very high levels, and now it's done, and it's good to get it behind us," the official said.
Congressional critics of the deal praised Barak's decision to drop the sale.
"Israel made the right decision today to cancel the Phalcon sale to China," said Rep. Sonny Callahan, an Alabama Republican who chairs the foreign operations subcommittee of the House Appropriations Committee. "For the sake of U.S. national security interests and ... the national security interests of all our allies, such as Israel, I am glad this has been resolved."
At Camp David, meetings of Israelis, Americans and Palestinians continued yesterday in various combinations and in "a good atmosphere," Lockhart told reporters at a media center a few miles from the Catoctin Mountain presidential retreat.
The three dozen negotiators - who walk under towering trees, sleep in rustic cabins and wear informal clothes - are working amid "a certain informality on the Camp David site that, I think, is adding some value to these discussions," Lockhart said.
But he indicated that on the second day of the talks, negotiators were headed onto contentious and uncertain ground.
"We have known all along that this was going to be a struggle, and it is," Lockhart said.
But no details emerged from any of the three delegations, which have agreed to a strict news blackout on the substance of negotiations
Clinton planned to temporarily leave Camp David early today to address the National Association for the Advancement of Colored People, which is conducting its 91st annual convention in Baltimore.
Some former diplomats criticized the decision, saying the president should devote all his time to the summit. But White House officials disputed the notion that the talks would lose momentum without Clinton's presence today, saying Secretary of State Madeleine K. Albright would be an effective replacement.
Lockhart said he could not confirm news reports that Arafat would ask U.S. officials for permission to meet at Camp David with Palestinian officials who are not already part of his delegation.
"No request has been made, nor has anyone in our delegation heard a request," Lockhart said.