U.S. Retreats on Baker Threat : Israel Upset by Curbs on Refugee Aid

The Bush Administration today reversed itself and offered Israel guaranteed loans to help resettle Soviet Jews in an effort to calm Israeli anger over tough words by Secretary of State James A. Baker III and to rescue Middle East peace efforts.

Baker angered Israel on Thursday by saying the Administration could endorse giving Israel $400 million in loan guarantees to build housing for Soviet Jews, but only if Israel promises not to put any new settlers in the West Bank or Gaza Strip.

Israeli leaders today sharply criticized the linkage.

Prime Minister Yitzhak Shamir of the right-wing Likud bloc said the Bush Administration should “reconsider this position.” And in a rare show of unity, his rival, Labor Party leader Shimon Peres, agreed.

In an abrupt reversal this afternoon, State Department spokeswoman Margaret Tutwiler said Washington will support giving Israel the loan guarantees if Israel provides assurances about the use of the money similar to those it already provides regarding its regular $3 billion in annual U.S. aid.

“The good news, which should be viewed as good news . . . (is) we were no longer reviewing this, that we were prepared to support it, provide that we had some types of assurances,” Tutwiler said.

Asked if an assurance that Israel would not use the $400 million to build housing in the occupied West Bank and Gaza Strip would be acceptable, Tutwiler said:

“We would view that as a step in the direction and as a positive.”

Baker’s statement, made Thursday to the House Appropriations foreign aid subcommittee, was markedly different.

“If we provide housing guarantees, we have no assurance whatsoever that the housing guarantees provided will not simply supplant other money that’s then used to support settlements in the occupied territories,” he said.

But several diplomatic and official sources said the new U.S. language may have come too late to rescue Baker’s peace initiative aimed at arranging an unprecedented Israeli-Palestinian peace dialogue.

“It was unbelievable. In half an hour of rash talk, Baker may have wrecked 11 months of patient diplomacy,” said one source familiar with Middle East peace efforts.

Tutwiler said Baker spoke to Shamir for 45 minutes on the telephone after his testimony “and the prime minister once again thanked Secretary Baker for all of his tireless efforts and the amount of time that he has devoted to this.”

But Israeli sources said Shamir was upset once the full text of Baker’s testimony had been conveyed to him.

“The message we got from Baker is very, very counterproductive, and we can’t accept it,” said Yossi Olmert, the Shamir-appointed head of the government press office.

“The prime minister is fighting in order to save the peace process. He doesn’t need that kind of message at a time like that,” Olmert said.

Shamir has convened ministers of his Likud party Saturday night to discuss whether to accept the latest U.S. proposals on the peace dialogue, which is aimed at paving the way to Palestinian elections in the occupied territories.